Derivatives Usage by Non-Financial Firms in Thailand; implications on the hedging strategy

This dissertation is the result of the research carried out to investigate the derivatives usage in 65 non-financial companies across 8 specified industries in Thailand. The use of derivatives in Thailand is growing rapidly every year, our survey shows 75% of firms using derivatives in their hedging strategy. There is no significance in the use between Thai and Foreign companies in Thailand, while smaller firms do not use derivatives as much as larger firms, especially large listed companies. In addition, firms with more involvement in foreign business activities are more likely to use derivatives than firms with little to no foreign activities. The most significant reason for non-use of derivatives is the lack of knowledge in the derivatives market, followed closely by the concerns about the accounting treatment and disclosure requirements of derivatives. From the 48 firms that use derivatives, they most frequently hedge against the foreign exchange exposure, while the use of forwards is the most common amongst the derivatives instruments. The hedging of contractual commitments and expected transactions both have the highest intensities of hedging according to results in this sample. The management of volatility of cash flows and accounting earnings are the most significant objectives indicated by the companies. The concerns associated with the use of derivatives received mixed results, with the concern over pricing and valuing derivatives being the most serious concern. The lack of knowledge within the firm, the evaluation and quantification of risk in transactions and the accounting disclosure issue all proved to be important concerns. The majority of companies have no set schedule for derivatives reporting and valuation, and only 33% of companies included derivatives usage in their annual reports. Most firms were found to be using internal resources as help in their use of derivatives, and only a few large companies using external services available. All companies considered the industry factor to have an effect on firm's hedging strategy. The discussion and analysis of the results should provide a clear explanation on the findings in this research