Derivative Usage and Firm Value : Evidence for Norwegian Non-financial Firms

Abstract

Using derivative usage data from 185 firms listed on the Oslo Exchange during the 2007 to 2021 time period, we find a positive correlation between derivative usage and firm value. However, the significance varies across derivative types and firm value quantile distributions. The derivative instruments exhibit varying associations with firm values that are mostly positive, though interest rate cap derivatives generally show negative associations. Also, there are dynamic associations between derivative usage and firm value over different time intervals. These results are robust to dynamic difference-in-difference estimations, an econometric framework that reduces potential endogeneity problems and explains causality. We conclude that derivative usage has, in general, a positive lagged impact on firm value for Norwegian-listed firms that are exposed to the relevant risks.