An empirical analysis on the application of financial derivatives as a hedging strategy among Malaysian firms

Financial derivatives play an important role in helping companies manage the risk involved in interest rates, currency exchange rates, and equity markets. This study investigates the factors that influence derivative usage in Malaysian firms, as not much research has been conducted on the Malaysian market. Objectively, this study aims to determine the application of derivatives in Malaysian corporations by using a sample of 58 nonfinancial firms over the period 2011 to 2016. Relying on secondary data and focusing on a quantitative approach, the regression results conclude that the leverage, capital expenditure ratio and profitability factors are significant in the use of financial derivatives among Malaysian financial firms. This study provides some insights for policymakers to understand how derivatives can be used as off-balance-sheet risk management tools for Malaysian financial firms, thus minimizing these firms’ risk exposure.