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Non-linear relationship between foreign currency derivatives and firm value : evidence on Shariʿah compliant firms
Joint Authors
Zamzamin, Zaminor Zamzamir
Haron, Razali
Ulum, Zatul Karamah Ahmad Baharul
Uthman, Anwar Hasan Abd Allah
Source
Issue
Vol. 28, Issue 2 (30 Apr. 2021), pp.156-173, 18 p.
Publisher
Islamic Development Bank (IDB) Islamic Research and Training Institute (IRTI)
Publication Date
2021-04-30
Country of Publication
Saudi Arabia
No. of Pages
18
Main Subjects
Abstract EN
Purpose - This study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.
Design/methodology/approach - This study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE).
The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years).
The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.
Findings - This study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework.
This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk.
Second, firms practice selective hedging to maintain the upside potential of firm value.
Research limitations/implications - This study has important implications.
First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.
Originality/value - This study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects.
First, re-examines the relationship using recent data.
Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship.
Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework.
This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.
American Psychological Association (APA)
Zamzamin, Zaminor Zamzamir& Haron, Razali& Ulum, Zatul Karamah Ahmad Baharul& Uthman, Anwar Hasan Abd Allah. 2021. Non-linear relationship between foreign currency derivatives and firm value : evidence on Shariʿah compliant firms. Islamic Economic Studies،Vol. 28, no. 2, pp.156-173.
https://search.emarefa.net/detail/BIM-1414665
Modern Language Association (MLA)
Zamzamin, Zaminor Zamzamir…[et al.]. Non-linear relationship between foreign currency derivatives and firm value : evidence on Shariʿah compliant firms. Islamic Economic Studies Vol. 28, no. 2 (Apr. 2021), pp.156-173.
https://search.emarefa.net/detail/BIM-1414665
American Medical Association (AMA)
Zamzamin, Zaminor Zamzamir& Haron, Razali& Ulum, Zatul Karamah Ahmad Baharul& Uthman, Anwar Hasan Abd Allah. Non-linear relationship between foreign currency derivatives and firm value : evidence on Shariʿah compliant firms. Islamic Economic Studies. 2021. Vol. 28, no. 2, pp.156-173.
https://search.emarefa.net/detail/BIM-1414665
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references : p. 170-173
Record ID
BIM-1414665