International Journal of Business and Economics Volume 11, No. 1 June, 2012

The Use of Derivatives as a Risk Management Instrument: Evidence from Indonesian Non-Financial Firms

I Wayan Nuka Lantara

Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia

Abstract

This paper provides empirical evidence of firm-specific factors determining the decision to use derivatives and the level of usage for the case of Indonesia. The findings show that the participation rate in the use of derivatives is 15.8%, much lower compared to those found in developed countries. Using Probit and Tobit regression models, the results indicate that the use of derivatives is positively associated with firm size, market-to-book value, bank-firm relationship, and the involvement of the firm in foreign business activity, but negatively linked to liquidity.

Keywords：derivatives, risk management, hedging.

JEL Classifications：G32.

BACK