The use of derivatives in Nordic firms

We contribute to the previous literature on the use of derivatives by studying separately the determinants of profit seeking versus those of hedging. In our sample of listed firms from four Nordic countries, about 62% use derivatives. Although the hedging motive clearly dominates, over half of the firms give some weight for additional income as a motive for the use of derivatives. Combining survey data on the use of derivatives with financial variables, data on management and blockholder ownership, and data on firm-level diversification, we find that very different determinants drive the use of derivatives for these two motives. Firm-level diversification is negatively related to hedging, but is positively related to the use of derivatives for additional income. Financial firms use derivatives more for profit than for hedging. We also find weak support for a value-increasing effect of the use of derivatives.