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Does derivative accounting affect risk management?: international survey evidence

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This paper uses worldwide survey evidence to study the effect of derivative accounting standards on firms’ risk management activities. More than 40% of the companies indicate that their risk management policies have been affected by the new standards. Their ability to hedge from an economic perspective has been compromised, but so have their speculative activities. Firms are more affected by the new standards if they operate in an environment where they are more likely to write contracts based on accounting numbers, if they attach a lot of importance to the reduction in the volatility of earnings as a benefit of risk management, and if they are more inclined to take active positions. We also document a substantial decrease in foreign exchange hedging and in the use of non-linear hedging instruments, which are less likely to qualify for hedge accounting. This evidence indicates that the impact of the new standards has been mixed, and has not affected all firms equally.

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en

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http://eprints.lse.ac.uk/41514/

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