WP 2014/04: Derivatives and non-financial companies: lessons from the financial crisis

Rodrigo Zeidan 27 Agosto 2014

The paper identifies failures of corporate governance that allow non-financial companies around the world to develop hedging strategies that lead to hefty losses in the aftermath of the financial crisis. The sample is comprised of 346 companies from 10 international markets, of which 49 companies (and a subsample of 13 distressed companies) lose a combined US$18.9 billion. An event study shows that most companies that present losses in derivatives experience negative abnormal returns, including a number of companies in which the effect is persistent after a year. The results of a probit model indicate that the lack of a formal hedging policy, no monitoring to the CFOs, and considerations of hubris and remuneration contribute to the mismanagement of hedging policies.

Rodrigo Zeidan New York University di Shanghai
Risk Management, Hedging, Derivatives, Corporate Governance, Event Study
JEL Codes
G32, G34, G01
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