PENGARUH LIQUIDITY, FIRM SIZE, GROWTH OPPORTUNITY, FINANCIAL DISTRESS, LEVERAGE DAN MANAGERIAL OWNERSHIP TERHADAP AKTIVITAS HEDGING DENGAN INSTRUMEN DERIVATIF (Studi Kasus Pada Perusahaan Nonfinansial Yang Terdaftar Di BEI Periode 2010-2014)

Hedging by using derivative instruments is one of the common risk management used by company to protect their assets from risk of exchange rate and interest rates. This study aimed to determine the effect of liquidity, firm size, the growth opportunity, financial distress, leverage and managerial ownership on hedging activity using derivative instruments at non-financial companies listed on the Indonesia Stock Exchange in 2010-2014. The population of the study is a data non-financial companies listed on Indonesia Stock Exchange in 2010-2014 The sample in this study amounted to 93 companies by using purposive sampling. This study using logistic regression analysis techniques, to determine the variables that affect of the use of derivative instruments as hedging activity. The results of this study showed that there are three variables that affect significantly hedging activity using derivative instruments. Variable firm size and leverage have positive affect on hedging activity using derivative instruments, and variable financial distress have negative affect on hedging activity using derivative instruments. Whereas for the other variables did not influence the hedging activity using derivative instruments

Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration

This paper examines contemporary derivative instruments and the Islamic viewpoint of these new instruments. The validity and permissibility of these instruments appears to vary by scholar. Even where Islamic scholars have found them to be objectionable, their reasons for objection differs. Much of the work by Islamic scholars has been of a highly juridical nature. They examine derivatives within narrow confines of contractual arrangements and thereby miss the broader picture of why instruments like futures and options are needed in modern business environments. This paper analyzes forwards, futures and options, examines the evolution of these instruments, their unique benefits and makes a case for why they are needed. Islamic Finance instruments with derivative like features such as the Ba’i Salam and Istijrar contracts are also examined. Some of the key concerns that Islamic scholars have regarding derivatives is addressed. The paper is divided into four parts. Part 1, outlines the objective and introduces derivative instruments. Part 2, examines the Islamic viewpoint and shariah conditions for financial instruments. Part 3, examines Ba’i Salam and Istijrar contracts. Part 4, clarifies why some of the objections of Islamic scholars regarding features and trading mechanism may be misplaced and concludes.Islamic Finance and Derivative Instruments; The need for a reconsideration of their acceptability

Model uncertainty and its impact on the pricing of derivative instruments

Model uncertainty, in the context of derivative pricing, can be defined as the uncertainty on the value of a contingent claim resulting from the lack of precise knowledge of the pricing model to be used for its valuation. We introduce here a quantitative framework for defining model uncertainty in option pricing models. After discussing some properties which a quantitative measure of model uncertainty should verify in order to be useful and relevant in the context of risk measurement and management, we propose a method for measuring model uncertainty which verifies these properties and yields numbers which are comparable to other risk measures and compatible with observations of market prices of a set of benchmark derivatives. We illustrate the difference between model uncertainty and the more common notion of "market risk" through examples. Finally, we illustrate the connection between our proposed measure of model uncertainty and the recent literature on coherent and convex risk measures.decision under ambiguity; uncertainty; option pricing; risk measures; mathematical finance

Accounting for derivatives and risk management activities: The impact of product market competition

© Emerald Group Publishing Limited. Purpose - The lessons and merits of changes in the recognition and disclosure of derivative instruments and hedging activities are still debated and are a major policy issue. Prior studies provide mixed evidences on the economic consequences of mandatory derivative instruments\u27 recognition and disclosure. This paper aims to provide empirical evidence on the impact of mandatory derivative instruments\u27 recognition and disclosure on managers\u27 risk-management behavior. More importantly, this paper aims to investigate the role of product market competition on the impact of mandatory derivative instruments\u27 recognition and disclosure on managers\u27 risk-management behavior. Design/methodology/approach - This paper tests the author\u27s hypotheses using the fixed-effects estimation technique, where it includes firm dummies in all the regressions. This approach enables to control for unobserved firm effects (fixed effects) on firms\u27 risk-management behavior that are assumed to be constant through time but vary across firms. Findings - The author finds that mandatory recognition and disclosure of derivative instruments and hedging activities, on average, decreases firms\u27 market rate risk exposure. This finding suggests that after the implementation of the recognition and disclosure of derivative instruments and hedging activities required by Statement of Financial Accounting Standards No. 133 (SFAS 133), firms engage in more prudent risk-management activities to mitigate the potential cost of earnings volatility imposed by the standard. However, the decrease in market rate risk exposure is lower when the level of product market competition is higher. This finding is consistent with the idea that the recognition and disclosure of derivative instruments and hedging activities required by SFAS 133 unintentionally forces firms in competitive industries to engage in significant risk-taking. The result suggests that more disclosure in risk management may change risk-management incentives in undesirable ways if firms face the threat of entry in their product markets. Practical/implications - The results provide a new understanding on the role of product market competition on the effectiveness of mandatory derivative instruments\u27 recognition and disclosure. The findings imply that standard setters should take product market competition into consideration before making derivative instruments and hedging activities\u27 recognition and disclosure mandatory for all firms. Originality/value - The paper contributes to the accounting literature by providing a new insight into the moderating role of product market competition in the accounting recognition and disclosure regulation and firms\u27 reporting behavior relation. Moreover, the paper extends the current literature on the effects of SFAS 133 on risk-management activities and sheds light on the impact of accounting regulations on firms\u27 real economic behavior

Determinasi Faktor-faktor Keputusan Hedging dengan Instrumen Derivatif pada Perusahaan Manufaktur

This study was conducted to determine the effect of independent variables used such as leverage, liquidity, growth opportunity, firm size, and financial distress on hedging decisions with derivative instruments in manufacturing companies on the IDX for the 2017-2021 period. The data used is secondary data downloaded from the Indonesia Stock Exchange website and the company's official website in the research sample. In selecting the sample, this study used a purposive sampling technique. The sample used was 47 manufacturing companies listed on the IDX for the 2017-2021 period. Logistic regression analysis was used in this study to test the hypothesis of each variable used. The test results show that the variables of leverage, growth opportunity, and firm size have a positive influence on hedging decisions with derivative instruments, and financial distress has a negative influence on hedging decisions with derivative instruments, while liquidity has no effect on hedging decisions with derivative instruments

ANALISIS FAKTOR- FAKTOR YANG MEMPENGARUHI PENGAMBILAN KEPUTUSAN LINDUNG NILAI (HEDGING) MENGGUNAKAN INSTRUMEN DERIVATIF (Studi Kasus Pada Perusahaan Manufaktur dan Perusahaan Energi dan Sumber Daya Mineral Yang Terdaftar Di BEI Periode 2010-2014)

Hedging is an alternative of risk management that aims to protect the assets of company from losses caused by the risk. This study’s purpose is to analyze the influence of independent variables which include leverage, liquidity, the growth opportunity, financial distress, cash flow volatility and dummy variable for the different effect of mining companies to manufacturing companies on hedging decision using derivative instruments at manufactures and mining companies listed on the Indonesia Stock Exchange in 2010-2014. This study uses secondary data derived from the annual financial statements of 72 mining and manufacturing companies listed on Indonesian Stock Exchange the period 2010 to 2014. Sampling using purposive sampling method with the provision of the company that publishes full financial statements. Data analysis using logistic regression test because the data used are metric and non-metric. By logistic regression analysis can be seen how the variables affect the probability of the company to hedge using derivative instruments. The results of this study found that liquidity, growth opportunity, financial distress, and cash flow volatility have significant effect on Hedging Decision using derivative instruments, whereas for the other variables did not influence hedging decision using derivative instruments. From the results of logistic regression found that the variable leverage, liquidity, the growth opportunity, financial distress, cash flow volatility and dummy variable for the different effect of mining companies to manufacturing companies can explain Hedging Decision using derivative instruments by 25,8%, and the rest is explained by other variables outside the model

Accounting for Derivative Instruments and Hedging Activities

The goal of this research was to investigate the reasons behind the plethora of amendments of the FASB Accounting Pronouncements for Financial Instruments from 2002 to 2008. Entities have communicated their apprehensions that the existent disclosure requirements in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, do not furnish sufficient input about how derivative and hedging activities influence an entity’s financial position, financial performance, and cash flows. Correspondently, in 2008 the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. The purpose of the study was to investigate the extent to which the thirty companies that comprise the Dow Jones Industrial Average complied with the new qualitative and quantitative disclosure requirements for derivative financial instruments of SFAS No. 161. Following the theoretical framework of corporate risk management, the quarterly financial statements (10Qs) of the thirty companies that comprise the Dow Jones Industrial Average were examined to determine whether companies complied with the qualitative requirements of SFAS No.161 to disclose their objectives for holding or issuing derivative financial instruments and their risk management policy as well as a description of the items being hedged. A surprising finding was that most companies failed with the requirements of SFAS No. 161 to disclose the required information about cash flow hedges, net investments in foreign operations and, fair value hedges. These findings suggest that although the FASB issued SFAS No. 161 to enhance derivative disclosures to enable users of financial statements to evaluate the success and significance of derivative instruments and hedging transactions on an entity’s financial statements, companies might need additional time to implement the standard

The Economics of Financial Derivative Instruments

The phenomenal growth of derivative markets across the globe indicates their impact on the global financial scene. As the securities markets continue to evolve, market participants, investors and regulators are looking at different way in which the risk management and hedging needs of investors may be effectively met through the derivative instruments. However, it is equally recognised that derivative markets present market participants and regulators with different and complex regulatory(control) issues, which must be adequately addressed if derivative markets are to gain and maitain investor confidence. And yet, more and more companies are using(or being forced to use) futures and derivatives to stay competitive in a fast-changing world characterised by both unprecedented opportunities and unprecedented risks. Thus, the thrust of this paper is to provide a detailed study of the manner in which the market works and how the knowledge can be used to make profits and avoid losses in a competitive economy setting.derivatives,futures,options, commodities, OTC,assets, stocks, indexes, swaps, instruments,foreignexchange, forex, hedging, spot,markets,arbitrage, risk, exchanges, brokers, storage, economies, financial, prices

Credit default swaps and their market function

Credit derivative instruments allow default risk to be segregated from debt of all kinds. They have granted investors the ability to hedge their portfolios and provided numerous institutions with a new source of income. However, the market for credit default swaps is neither transparent nor regulated, perhaps undermining the stability of the financial system it has helped innovate.Credit derivatives ; Swaps (Finance)

The determinants of corporate hedging policy : a case study from Indonesia

Looking at general, the company will hedge when the amount of foreign debt rises along with fluctuations in foreign exchange rates. However, this is not the case with the non-financial sector companies in Indonesia Stock Exchange, which shows a decrease in the use of derivative instruments compared to financial sector companies during the period 2014-2016. Τhe study aims to analyze the effect of internal factors on hedging policies through the use of derivative instruments in nonfinancial companies in the period 2014-2016, by putting the firm size as a control variable. The logistic regression analysis is used to test the antecedents of the hedging policy from the selected sample. The result shows that the liquidity and cash flow volatility have a significant positive effect on the use of derivative instruments. Meanwhile, dividend payout ratio, managerial ownership, leverage and the growth opportunity have no significant effect on hedging policy.peer-reviewe