Effects of Derivative Use on Firm Value: Evidence from Pakistan

Abstract

This study examines the effect of derivative usage on a firm’s value in Pakistan. By the testing sample of 55 non-financial Pakistani firms from 2018 to 2022, this study aims to determine whether using derivatives increases or decreases company (firm) value. In multivariate tests, Tobin’s Q was used as a proxy for firm value and found a positive relationship between firm value and hedging. On the other hand, there is little relation between the coefficients of hedging variables. Further, this study’s test result shows that the impact of the study is consistent with MM theory.