Effect of derivative accounting rules on corporate risk-management behavior

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102 Scopus citations


I examine the effect of the accounting standard for derivative instruments (SFAS No. 133) on corporate risk-management behavior. I classify a derivative user as an "effective hedger" (EH firm) if its risk exposures decreased after the initiation of the derivatives program, and as an "ineffective hedger/speculator" (IS firm) otherwise. I find that volatility of cash flows and risk exposures related to interest rate, foreign exchange rate, and commodity price decrease significantly for IS firms but not for EH firms, suggesting that IS firms engaged in more prudent risk-management activities after the adoption of SFAS No. 133.

Original languageEnglish (US)
Pages (from-to)244-264
Number of pages21
JournalJournal of Accounting and Economics
Issue number3
StatePublished - Jun 1 2009
Externally publishedYes


  • Derivative financial instruments
  • Risk-management behavior
  • SFAS 133


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