The wealth effect of swap usage in the food processing industry

U.S. companies use interest rate swaps more than any other financial derivative. The effect of swap usage on the shareholders' wealth is both controversial and unclear. Using a sample from the food processing industry, we examined both short-run and long-run wealth effects associated with swap usage. A significant long-run wealth effect of swap usage on swap users was not found. However, there was a significant negative wealth effect during a short period before firms first disclosed swap usage to the SEC. This finding is consistent with the argument that derivative usage may not be in the best interest of shareholders. © 2000 John Wiley & Sons, Inc.