Do derivatives affect the use of external financing?

We examine whether derivatives use reduces the utilization of external financing for a large sample of nonfinancial firms over the period 2002 to 2004. Using the measures of net external finance as discussed in Bradshaw <italic>et al</italic>. (2006), we find a negative association between corporate derivative use and the use of external financing. Further, we find the relationship is driven by differences in the use of debt, as opposed to equity financing.