An Examination of European Firms’ Derivatives Usage: The Importance of Model Selection

Anthony Carroll, Fergal O'Brien, James Ryan

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates the determinants of foreign currency (FX) and interest rate (IR) derivatives usage for European non-financial firms. We employ a Tobit model and a two-part model which allows the determinants of the usage decision to differ from the extent of usage decision. We find FX derivatives usage is motivated by economies of scale and FX exposure, while IR derivatives usage is motivated by the magnitude and nature of firms’ debt. We also find that for IR derivatives the determinants of the usage decision differ from the determinants of the extent of usage decision.

Original languageEnglish
Pages (from-to)648-690
Number of pages43
JournalEuropean Financial Management
Volume23
Issue number4
DOIs
Publication statusPublished - Sep 2017

Keywords

  • foreign exchange exposure
  • hedging policies
  • interest rate exposure

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