Association between Derivative Usage, Risk Management and Value of Firms: A Systematic Review

Abstract

There is a deficiency of consent on the role of derivative usage, risk management and value of firm. This review study investigates that whether the derivative usage minimizes the risk exposure of firms and whether derivative usage increases the value of firms. In addition this review study also investigates that whether the derivative usage minimizes the financial risk and foreign exchange risk of firms. This review study covers 46 quantitative studies which were published during the period of 2000 to 2018. The main findings of this review study are, firstly; the derivative practices are associated with minimization of overall risk of firms, secondly; usage of derivative practice reduce the risk between financial matters of firms, thirdly; the derivative practices are associated with risk reduction of foreign exchange rate volatility and fourthly; the value of firm is increased by the usage of derivatives. Future directions for researches are suggested.