DO DERIVATIVES INCREASE AMERICAN CORPORATE'S FINANCIAL PERFORMANCE?

Abstract

Hedging through derivatives contracts is a prominent tool under risk management system. This study
examines association between derivatives usage and financial performance by analyzing three main
categories of derivatives; commodity, interest rate, and foreign currency by considering altogether
multiple type of instruments collectively, such as; futures, forward, swaps and options. The literature
has mixed results about the association between hedging through derivatives usage and corporates
financial performance and value. We revisit this link while applying a unique methodology called;
Partial Least Square, Structural Equation Modeling (PLS-SEM), first time as per our knowledge. We
considered a characteristically exclusive sample of top American non-financial corporates, listed on
New York Stock Exchange, U.S 100 over period of 2009 to 2014; to exemplify and recommend the
findings to corporates that belong to emerging, developing and underdeveloped countries. We
confirm statistically and theoretically that hedging through derivatives has positive effect on
corporates financial performance and add premium. The findings of study have theoretical and
managerial contributions for emerging, developing and underdeveloped countries.