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Abstract

Hedging through derivatives contracts is a prominent tool under risk management system. This studyexamines association between derivatives usage and financial performance by analyzing three maincategories of derivatives; commodity, interest rate, and foreign currency by considering altogethermultiple type of instruments collectively, such as; futures, forward, swaps and options. The literaturehas mixed results about the association between hedging through derivatives usage and corporatesfinancial performance and value. We revisit this link while applying a unique methodology called;Partial Least Square, Structural Equation Modeling (PLS-SEM), first time as per our knowledge. Weconsidered a characteristically exclusive sample of top American non-financial corporates, listed onNew York Stock Exchange, U.S 100 over period of 2009 to 2014; to exemplify and recommend thefindings to corporates that belong to emerging, developing and underdeveloped countries. Weconfirm statistically and theoretically that hedging through derivatives has positive effect oncorporates financial performance and add premium. The findings of study have theoretical andmanagerial contributions for emerging, developing and underdeveloped countries.