Factors for Using Derivatives: Evidence From Malaysian Non-Financial Companies

Abstract

This study attempts to uncover factors that could influence Malaysian non-financial companies to use derivatives to manage their risk. In addition, it also tries to identify the hedging theory that is relevant to the Malaysian market. Univariate statistics analysis indicates significance differences between derivative users and non-users of Malaysian non-financial companies. The findings from binary logistic regression reveal that only current ratios (LIQ2) and market-to-book value (MTBV) are the main factors influencing these companies to use derivatives. Additionally, this study suggests that the underinvestment cost hypothesis rather than the financial distress hypothesis that are commonly found in US and Australia companies.

Keywords: derivatives, underinvestment cost hypothesis, financial distress hypothesis, market-to-book value