| dc.description.abstract | Financial derivatives have been studied and scrutinized in depth since the
financial crises in 2007-2009. Derivatives’ effect on firms, in particular firm value,
have been studied prior to, during, and post global recession, with no definitive
answer as to whether this relationship is positive or negative. The global oil price
shock that occurred in 2014 drove our interest in how this commodity, along with
other commodities are hedged by companies to mitigate risk, and whether or not
this action has a particular effect on firm value. We focus our research on U.S. nonfinancial
firms from the Standard and Poor’s 500 Index (S&P 500 Index), and
evaluate firm value using Pooled Ordinary Least Squares (Pooled OLS) regressions
and fixed effect between 2006-2017. This time period allows us to see the
relationship between commodity derivative usage and firms during periods of an
economic downturn, as well as during a commodity price shock. By looking at
S&P500 Index companies it gives us a better idea of commodity derivative usage
on a larger and broader scale.
We find that, firstly with the univariate test the firm value of the users are
significantly lower than the firm value of the non-users, proxy by the Tobin’s Q.
Secondly, with the multivariate test, we use the Fixed Effect estimator to deal the
problem because of the biased Pooled OLS estimator. We also found that the
distribution of the firms’ value with commodity derivatives are less peaked than the
distribution of the firms’ value without commodity derivatives. It implies that using
commodity serves the firm as the insurance.
For the Tobin’s Q and the firm size, as the proxies of the firm values, the
mean and the median of the user Tobin’s Q are statistically significant different to
the mean of the non-users. | nb_NO |
