Study of the influence of derivative strategies on the risk of Brazilian companies

Abstract

This work aims at investigating the influence of hedge approaches on corporate risk by applying an empirical research on derivative strategies by publicly traded Brazilian companies and the association with their risk levels. Many previous studies did not analyze the effects of specific attributes of both derivative strategies and various financial instruments adopted by companies to mitigate their risk. In this paper, these features were considered and, splitting derivative strategies such as currencies and interest rates, the results indicate that the influence of the strategies on the risk is significant. When the total amount of derivatives contracted by firms was deployed in strategies and products, an association between risk and derivative strategies was significant, which may be explained by the peculiarities of foreign currency and interest rates embedded in various financial instruments. This result is consistent with the macroeconomic environment in which Brazilian companies are inserted in view of the frequent exposure to currency risk and interest rate volatility.

Keywords: financial derivatives, corporate risk, Brazilian companies, hedging alternatives, panel data analysis, derivative strategies, risk effects.