This study investigates the use of derivatives by firms listed on the Johannesburg Stock Exchange (JSE) during 2005 to 2017, and the disclosure of derivative financial instruments on the financial statements of these entities. The study can be broadly divided into two parts: the first part investigates the determinants of corporate hedging practices by JSE-listed firms, while the second part analyses the value relevance of derivatives disclosures. The first part of the study thus answers the question ‘Why do companies use derivatives?’ with reference to JSE-listed companies for the period 2005 to 2017. The second part of the study answers the question ‘Does the disclosure of derivatives in the financial statements have an impact on firm value?’ for the same companies and period. Binomial logistic regression analyses were done to assess the determinants of the corporate hedging practices employed by JSE-listed firms. Multiple linear regression analyses were used to determine the value relevance of derivatives disclosures. The results of the study suggest that firm size, growth prospects, leverage and managerial risk aversion are important determinants of JSE-listed firms’ hedging decisions. Furthermore, the findings suggest that the disclosure of firms’ use of derivatives in the financial statements is value relevant and that companies listed on the JSE are associated with a higher Tobin’s Q if they disclose a derivatives amount. This study also investigates whether the value relevance of derivatives disclosure is influenced differently under different conditions during different economic periods and whether the level of quality of the disclosure influences the value relevance of derivatives disclosure. The data show that the value relevance of risk disclosure companies depend on different economic periods, and that the level of higher quality risk disclosure has a negative impact on the value relevance of derivatives disclosures: firms are valued lower where the level of quality of derivatives disclosures is higher. / Thesis (PhD)--University of Pretoria, 2020. / Financial Management / PhD / Unrestricted

Firms operating in the United States face important litigation risk, yet little is known on how this risk affects financial decisions. I use a natural experiment to explore the effect of litigation risk on firms' hedging behavior. I find that firms are more likely to use financial derivatives following an exogenous increase in litigation risk. This finding is stronger in the subset of firms with higher distress costs, lower credit ratings, and higher legal concerns. My results imply that litigation risk can at least partially explain the use of financial derivatives.

This dissertation addresses issues in corporate risk management. Part I examines the determinants for corporate decisions to commodity hedge and to the extent of hedging. Chapter 1 discusses prior literature, including theory and empirical evidence on corporate risk management. It provides the background to support the empirical analyses of Chapters 2, 3 and 4. Chapter 2 examines corporate decisions to commodity hedge. I find that firms are more likely to hedge when they are big, have risk management department set up and have more of their competitors hedge. Chapter 3 investigates what determines the extent of hedging conditional on hedging decisions and the cross-sectional and time series deviation of the hedge ratio. I find that firms tend to hedge less when they have younger CEOs and have more options in their compensation plan. I also find that when determining the hedge ratio, firms with young CEOs and higher option compensation tend to respond to past commodity price growth and to deviate from industry average. Part II investigates the relationship between corporate risk management and product market competition. Chapter 4 examines the different product market performance for firms with different hedging polices after commodity price shocks. I find that unhedged firms which are ex ante financially constrained lose market share and experience a decreased profitability during and after commodity price shocks. Chapter 5 examines whether the loss of unhedged constrained firms in product market is driven by the competitors. I find that firms with financial advantages—unconstrained hedged firms—tend to increase advertising expenditures and decrease price-cost-margins during negative commodity shocks, indicating that the market share loss of constrained unhedged firms is due to increased competition in the product market. Chapter 6 examines whether corporate risk management affects the likelihood of firms exiting the market. I find that constrained unhedged firms are 6% more likely to exit the market than their unconstrained hedged rivals and the effects are stronger in concentrated industries and industries with higher leverage dispersion. / text

This study attempts to resolve two important issues. First, it investigates the diversification benefit of crude oil for equities. Second, it examines whether or not crude oil derivatives transactions by oil and gas producers can change shareholders' wealth. With these two major goals in mind, I study the risk and return profile of crude oil, the value effect of crude oil derivatives transactions, and the systematic risk exposure effect of crude oil derivatives transactions. In contrast with previous studies, this study applies the Goldman Sachs Commodity Index (GSCI) methodology to measure the risk and return profile of crude oil. The results show that crude oil is negatively correlated with stocks so adding crude oil into a portfolio with equities can provide significant diversification benefits for the portfolio. Given the diversification benefit of crude oil mixed with equities, this study then examines the value effect of crude oil derivatives transactions by oil and gas producers. Differing from traditional corporate risk management literature, this study examines corporate derivatives transactions from the shareholders' portfolio perspective. The results show that crude oil derivatives transactions by oil and gas producers do impact value. If oil and gas producing companies stop shorting crude oil derivatives contracts, company stock prices increase significantly. In contrast, if oil and gas producing companies start shorting crude oil derivatives contracts, stock prices drop marginally significantly. Thus, hedging by producers is not necessarily good. This paper, however, finds that changes in policy regarding crude oil derivatives transactions cannot significantly affect the beta of shareholders' portfolios. The value effect, therefore, cannot be attributed to any systematic risk exposure change of shareholders' portfolios. Market completeness, transaction costs, and economies of scale are identified as possible sources of value effect. The following conclusions have been obtained in this study. Crude oil provides significant diversification benefits for equities. In the presence of market imperfections, crude oil derivatives transactions by oil and gas producers may change shareholders' wealth, even though crude oil derivatives transactions by oil and gas producers do not have significant effect on the systematic risk exposures of companies.

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2014. / Corporate Risk management has become very important for firms who are exposed to markets risks. A firm that manages the market risks it is exposed to efficiently can ensure it remains solvent in times of extreme market volatility. This paper looks at the hedging activities of South African Airways over a 10 year period where the airline experienced significant losses due to volatility in the Rand Exchange Rate and Crude Oil prices.

There is qualitative and anecdotal evidence that corporate management deviates from received risk management theory. These deviations include: an overall hesitancy to accept projects with greater levels of total risk, increased return requirements compensating for firm-specific risk, employment of hedging strategies, the insuring of diversifiable risks, corporate diversification outside of the industry constraint, and the utilization of portfolio and other variance reducing methods. The literature primarily contributes these behaviors to principal/agent conflicts. Evidence from studies on these deviations support strong arguments based in resource scarcity, cost and availability of capital, employee/community stability, and the increases in bankruptcy costs that these risk management deviation are in the interest of shareholders. When considered in the context of the long-term impact on value, the observed deviations from received corporate risk management theory contribute substantively to the perpetuation of the firm as a long-term store of value. This paper supports two hypotheses: (1) the deviation from received risk management theory by corporate managers is broadly practiced, and (2) these deviations are generally in the interest of shareholders. / Master of Arts

Esse estudo de caso reflete uma situação percebida pelo autor, alcançada durante a pesquisa para composição dessa dissertação, de que no Brasil o gerenciamento de risco corporativo ainda é pouco incorporado à cultura empresarial, sendo mais utilizado nas grandes empresas, nacionais ou multinacionais. Também é iniciante o reconhecimento da necessidade de o risco ser identificado, monitorado e mitigado, permeando todos os níveis da organização, incluindo o ambiente externo à montante e à jusante do processo. Nesse trabalho, o Supply Chain é o foco da atenção, com todos os seus componentes. Ainda que se adote um método de gerenciamento de risco corporativo, o nível de maturidade das empresas brasileiras em gerenciar o risco de sua atividade econômica ainda é relativamente baixo. Considerando a atuação profissional do autor como colaborador da empresa, essa dissertação propôs-se a analisar o gerenciamento de risco corporativo praticado na AkzoNobel, multinacional holandesa estabelecida no Brasil desde os anos 1960, em seu negócio local de Celulose, identificar os principais riscos de sua cadeia de valor, com foco no Supply Chain, e avaliar seu nível de maturidade no gerenciamento dos riscos aos quais está submetida. Gerenciamento de Risco Corporativo e Avaliação de Maturidade Empresarial foram as bases conceituais acessadas, a primeira especialmente baseada em COSO, e a segunda em Oliva. O autor utilizou pesquisa bibliográfica, aplicação de questionários e estudo de caso através da análise qualitativa das respostas e da validação dos dados. Os resultados apresentados foram a análise do gerenciamento de risco corporativo praticado pela organização, a identificação dos principais riscos aos quais se submete e a avaliação da maturidade empresarial da organização. As conclusões obtidas foram a avaliação do gerenciamento de risco corporativo praticado pela empresa e a avaliação do grau de maturidade empresarial da organização em gerenciamento de risco corporativo. / This case study reflects a situation perceived by the author, during the research for the composition of this dissertation, that in Brazil corporate risk management is still barely incorporated into the corporate culture, being more used in large companies, national or multinational. The recognition of the need for identify, monitore and mitigate risk, permeating all levels of the organization, including the external environment upstream and downstream of the process, is also in its first steps. In this work, the Supply Chain is the focus of attention, with all its components. Even if a method for corporate risk management is in place, the maturity level of Brazilian companies in managing the risk of their economic activity is still relatively low. Considering the professional acting of the author as a collaborator of the company, this dissertation proposed to analyze the corporate risk management practiced in AkzoNobel, a Dutch multinational established in Brazil since the 1960s in its local business of Cellulose, to identify the main risks of its supply chain, and evaluate its maturity level in the management of the risks to which it is submitted. Corporate Risk Management and Business Maturity Assessment were the conceptual bases accessed, the first especially based on COSO, and the second on Oliva. The author used bibliographic research, application of questionnaires and case study through the qualitative analysis of the answers and the validation of the data. The results presented were the analysis of corporate risk management practiced by the organization and the evaluation of the organization business maturity level. The conclusions obtained were the evaluation of the corporate risk management model practiced by the company and the assessment of corporate maturity in corporate risk management. The conclusions obtained resulted in the evaluation of risk management practiced by the company and in the evaluation of organization business maturity level.

Esse estudo de caso reflete uma situação percebida pelo autor, alcançada durante a pesquisa para composição dessa dissertação, de que no Brasil o gerenciamento de risco corporativo ainda é pouco incorporado à cultura empresarial, sendo mais utilizado nas grandes empresas, nacionais ou multinacionais. Também é iniciante o reconhecimento da necessidade de o risco ser identificado, monitorado e mitigado, permeando todos os níveis da organização, incluindo o ambiente externo à montante e à jusante do processo. Nesse trabalho, o Supply Chain é o foco da atenção, com todos os seus componentes. Ainda que se adote um método de gerenciamento de risco corporativo, o nível de maturidade das empresas brasileiras em gerenciar o risco de sua atividade econômica ainda é relativamente baixo. Considerando a atuação profissional do autor como colaborador da empresa, essa dissertação propôs-se a analisar o gerenciamento de risco corporativo praticado na AkzoNobel, multinacional holandesa estabelecida no Brasil desde os anos 1960, em seu negócio local de Celulose, identificar os principais riscos de sua cadeia de valor, com foco no Supply Chain, e avaliar seu nível de maturidade no gerenciamento dos riscos aos quais está submetida. Gerenciamento de Risco Corporativo e Avaliação de Maturidade Empresarial foram as bases conceituais acessadas, a primeira especialmente baseada em COSO, e a segunda em Oliva. O autor utilizou pesquisa bibliográfica, aplicação de questionários e estudo de caso através da análise qualitativa das respostas e da validação dos dados. Os resultados apresentados foram a análise do gerenciamento de risco corporativo praticado pela organização, a identificação dos principais riscos aos quais se submete e a avaliação da maturidade empresarial da organização. As conclusões obtidas foram a avaliação do gerenciamento de risco corporativo praticado pela empresa e a avaliação do grau de maturidade empresarial da organização em gerenciamento de risco corporativo. / This case study reflects a situation perceived by the author, during the research for the composition of this dissertation, that in Brazil corporate risk management is still barely incorporated into the corporate culture, being more used in large companies, national or multinational. The recognition of the need for identify, monitore and mitigate risk, permeating all levels of the organization, including the external environment upstream and downstream of the process, is also in its first steps. In this work, the Supply Chain is the focus of attention, with all its components. Even if a method for corporate risk management is in place, the maturity level of Brazilian companies in managing the risk of their economic activity is still relatively low. Considering the professional acting of the author as a collaborator of the company, this dissertation proposed to analyze the corporate risk management practiced in AkzoNobel, a Dutch multinational established in Brazil since the 1960s in its local business of Cellulose, to identify the main risks of its supply chain, and evaluate its maturity level in the management of the risks to which it is submitted. Corporate Risk Management and Business Maturity Assessment were the conceptual bases accessed, the first especially based on COSO, and the second on Oliva. The author used bibliographic research, application of questionnaires and case study through the qualitative analysis of the answers and the validation of the data. The results presented were the analysis of corporate risk management practiced by the organization and the evaluation of the organization business maturity level. The conclusions obtained were the evaluation of the corporate risk management model practiced by the company and the assessment of corporate maturity in corporate risk management. The conclusions obtained resulted in the evaluation of risk management practiced by the company and in the evaluation of organization business maturity level.