Derivatives usage in publicly-traded non-financial firms in Brazil

Abstract

This paper presents empirical evidence on derivatives usage by Brazilian non-financial firms, using a sample of 74 companies. The proportion of firms that use derivatives in Brazil is comparable to that of other countries already researched, with few exceptions. Evidence suggests that Brazilian managers use derivatives for risk management purposes rather than speculation, similarly to what was observed internationally. Economies of scale effects were observed, and the usage of derivatives across risk classes in Brazil follows patterns observed internationally, which means that companies use derivatives primarily to manage foreign exchange risk, followed by interest rates, commodities and equity exposures, in this order. Despite the high volatility of Brazilian markets, the main concerns of Brazilian managers seem to be much more linked to legal and institutional framework issues than to financial and economic aspects.