Impact of Derivatives on the financial performance of NSE listed companies

Abstract

The present study examines the different aspects of the use of derivatives and their impact on financial performance, trading efficiency and behaviour of stock prices of the companies under study. The overall objective of the study is to establish the effect of derivatives on the financial performance of companies listed in NSE (National Stock Exchange). The study has examined the risk management practices of a sample of 60 companies for ten years during the period (2006 to 2016). 20 companies each from the financial, manufacturing and trading sectors were included in the sample. In order to collect primary data via questionnaires, 35 companies were selected from there types of companies, namely financial, trading and manufacturing. Initially, all the companies were contacted through the mail but the initial level of response was not so encouraging subsequently reminders were sent to all companies but still the response was poor Then companies were personally contacted and pursued. With this effort, 30 companies responded out of 35 companies. The study sought both information from fund managers and accountants who were responsible for using derivatives. Both statistical measures and financial ratios have been used for the analysis of data. Majority of respondents strongly agree that the use of derivatives in risk management helps in maximizing the market value of Shares, ROA, and ROI, managing liquidity and improving the operational efficiency of their companies. Use of financial derivatives can help in improving trading efficiency as well as the liquidity of a company. There has been a stabilizing effect of derivatives on stock prices. newline