Derivative Usage In Corporate Pakistan: A Qualitative Research Of Listed Companies

Abstract

The motivation behind this study was to see why Pakistani companies are releuctant to use derivative instruments. The study aims to look into factors that influence the corporate finance managers to use derivatives. A structured questionnaire was used to obtain the response of finance managers of companies. The questionnaire aims at ascertaining the factors that influence the usage or non-usage of derivatives in corporate Pakistan. The questionnaire incorporated factors like trend of derivative usage, risk level, awareness with modern finance, correlation between hedging and firm’s value, firm’s performance and business cycle effect, and correlation between nature of business and financial risk. For this purpose, 67 non-financial firms were selected based on their nature of business, turnover, and risk level. Out of 67, 31 firms responded. We concluded that managerial knowledge of modern finance, development of full fledged derivatives market and measuring the risk level of corporation may enhance the derivative usage thus minimizing the financial risk of companies.