Do Corporations Hedge or Speculate with Derivatives? A Regression Analysis of 31 Fortune 500 US Companies

This paper addresses the public and regulatory discussions on whether firms use derivatives to reduce or increase risk. The investigation is carried out to see whether firms hedge or speculate with derivatives by using a regression quantitative analysis of a sample of 433 firm quarters of 31 Fortune 500 institutions in the US. The results obtained are generally contrary to theory which establishes that the use of derivatives is solely for hedging purposes. Many of the firms in the sample are users of derivatives and do manage their exposure using derivatives. On the other hand, compared to firms that do not use derivatives, they display an insignificant difference in risk associated directly with the use of derivatives. Therefore, the regulatory and public concern is not supported by empirical studies