Popular theories of financial risk management indicate that nonfinancial corporations may use derivatives to lower the expected costs of financial distress, to coordinate cash flows with investment policy, or because of agency conflicts between managers and owners. Using a new database of 7,319...

"Theory predicts that nonfinancial corporations might use derivatives to lower financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to...