Effect of currency derivatives on value of non-financial corporations in kenya

Abstract

Despite the rise in the uptake of currency derivatives by corporations worldwide, there is no consistent view on the effect that currency derivative has on the value to a non financial firm. Current events in the non financial sector in Kenya have also questioned the effect of the use of currency derivative as a hedging alternative. The study was conducted to investigate the effect of currency derivatives on the value of non financial firms in Kenya. The descriptive study was conducted on 26 non financial firms in Kenya for the period between 2011 and 2015. A regression test was done to investigate the relationship between all the variables in the general model. The study results indicate that there is a negative relationship between tobins Q and use of currency derivatives which implies that a unit increase in the use of currency derivatives will result to -0.130 unit decrease in the value of firm and a unit increase in the proportion extent of use will result to a -0.42 decrease in the value of the firm. An F test was done to investigate the relationship between currency derivative and tobins Q and also to investigate the relationship between the extent of currency derivative use and firm value and the results of the F test were significant with significance level less than 0.05.