The Effect of Using Financial Derivatives on the Firm Value

Abstract

The research aims to measure the impact of using the financial derivatives on the firm value also to identify the percentages using of financial derivative contracts for risk management and hedging in one hand, and trading on the other hand in practical way and to show their compatibility with the main purpose of these contracts, which is risk management and hedging. To achieve the research goal , the American financial market was chosen as a society for the research, as it represents the best field of financial derivatives for the largest transactions of these markets with financial derivative contracts, The U.S Bank & State Street Bank and was chosen to provide the necessary data to implement the research in these two banks, in addition to that these two banks are the active banks in derivatives transactions for the period from 2004 to 2016. The study results showed the removed of financial institutions, in practical applied, from the main purpose of using financial derivative contracts, which is hedging, also using these contracts for trading purposes in a large percentage. In addition to that use the financial derivative contracts for risk management purposes and hedging does not always lead to increase the firm value, while the use of derivative contracts for trading affects the value of firm.