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The use of financial derivatives and earnings volatility: evidence from Malaysia

In this turbulent business environment, each and every company will face various types of business risk such as foreign currency risk, interest rate risk, commodity risk and others. As the top management of an organization, managers could not escape from handling such risks when making economic deci...

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Main Authors:	Chua, Yong Xia, Phua, Lian Kee, Lok, Char Lee
Format:	Conference or Workshop Item
Language:	English
Published:	2018
Subjects:	HF5601 Accounting
Online Access:	http://repo.uum.edu.my/26067/1/ICAS%202018%2051%2057.pdf http://repo.uum.edu.my/26067/ http://icas.my/index.php/proceedings/250-the-use-of-financial-derivatives-and-earnings-volatility-evidence-from-malaysia
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id	my.uum.repo.26067
record_format	eprints
spelling	my.uum.repo.260672019-05-21T01:07:44Z http://repo.uum.edu.my/26067/ The use of financial derivatives and earnings volatility: evidence from Malaysia Chua, Yong Xia Phua, Lian Kee Lok, Char Lee HF5601 Accounting In this turbulent business environment, each and every company will face various types of business risk such as foreign currency risk, interest rate risk, commodity risk and others. As the top management of an organization, managers could not escape from handling such risks when making economic decisions. Therefore, the top management of an organization has the responsibility to eliminate the risks into an acceptable level before embarking into any business transactions. Financial derivatives have been commonly used to hedge an organization’s risk and reducing the probability of the company facing default. The usage of derivatives will directly affect firms’ earnings volatility. Hence, this paper aims at providing evidence on what is the tendency of Malaysian companies in using derivatives as risk management tool. As financial derivatives are used as a risk management tool, it can directly reflect on the companies’ earnings and cash flows. Therefore, in this study, we examine the effect of financial derivatives, director remuneration and board independence on earnings volatility. By using the top 100 non-financial listed companies in Malaysia, multiple regression analysis was conducted on the research model. The results exhibit that 54% of the top 100 Malaysian listed companies use derivatives. While, out of the top 100 listed companies, around 46 companies or 46% of firms are not using derivatives instrument. This shows that the usage of derivatives in Malaysia is not very common. In addition, the results show that the usage of derivatives is negatively related to earnings volatility while the directors’ remuneration and board independence have no significant relationship with earnings volatility. The findings provide empirical evidence that the usage of derivatives can mitigate earnings volatility. 2018 Conference or Workshop Item PeerReviewed application/pdf en http://repo.uum.edu.my/26067/1/ICAS%202018%2051%2057.pdf Chua, Yong Xia and Phua, Lian Kee and Lok, Char Lee (2018) The use of financial derivatives and earnings volatility: evidence from Malaysia. In: 5th International Conference on Accounting Studies (ICAS 2018), 16-17 October 2018, Penang, Malaysia. http://icas.my/index.php/proceedings/250-the-use-of-financial-derivatives-and-earnings-volatility-evidence-from-malaysia
institution	Universiti Utara Malaysia
building	UUM Library
collection	Institutional Repository
continent	Asia
country	Malaysia
content_provider	Universiti Utara Malaysia
content_source	UUM Institutionali Repository
url_provider	http://repo.uum.edu.my/
language	English
topic	HF5601 Accounting
spellingShingle	HF5601 Accounting Chua, Yong Xia Phua, Lian Kee Lok, Char Lee The use of financial derivatives and earnings volatility: evidence from Malaysia
description	In this turbulent business environment, each and every company will face various types of business risk such as foreign currency risk, interest rate risk, commodity risk and others. As the top management of an organization, managers could not escape from handling such risks when making economic decisions. Therefore, the top management of an organization has the responsibility to eliminate the risks into an acceptable level before embarking into any business transactions. Financial derivatives have been commonly used to hedge an organization’s risk and reducing the probability of the company facing default. The usage of derivatives will directly affect firms’ earnings volatility. Hence, this paper aims at providing evidence on what is the tendency of Malaysian companies in using derivatives as risk management tool. As financial derivatives are used as a risk management tool, it can directly reflect on the companies’ earnings and cash flows. Therefore, in this study, we examine the effect of financial derivatives, director remuneration and board independence on earnings volatility. By using the top 100 non-financial listed companies in Malaysia, multiple regression analysis was conducted on the research model. The results exhibit that 54% of the top 100 Malaysian listed companies use derivatives. While, out of the top 100 listed companies, around 46 companies or 46% of firms are not using derivatives instrument. This shows that the usage of derivatives in Malaysia is not very common. In addition, the results show that the usage of derivatives is negatively related to earnings volatility while the directors’ remuneration and board independence have no significant relationship with earnings volatility. The findings provide empirical evidence that the usage of derivatives can mitigate earnings volatility.
format	Conference or Workshop Item
author	Chua, Yong Xia Phua, Lian Kee Lok, Char Lee
author_facet	Chua, Yong Xia Phua, Lian Kee Lok, Char Lee
author_sort	Chua, Yong Xia
title	The use of financial derivatives and earnings volatility: evidence from Malaysia
title_short	The use of financial derivatives and earnings volatility: evidence from Malaysia
title_full	The use of financial derivatives and earnings volatility: evidence from Malaysia
title_fullStr	The use of financial derivatives and earnings volatility: evidence from Malaysia
title_full_unstemmed	The use of financial derivatives and earnings volatility: evidence from Malaysia
title_sort	use of financial derivatives and earnings volatility: evidence from malaysia
publishDate	2018
url	http://repo.uum.edu.my/26067/1/ICAS%202018%2051%2057.pdf http://repo.uum.edu.my/26067/ http://icas.my/index.php/proceedings/250-the-use-of-financial-derivatives-and-earnings-volatility-evidence-from-malaysia
_version_	1644284497466753024
score	13.211869

The use of financial derivatives and earnings volatility: evidence from Malaysia

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