Publication Type
Journal Article
Version
acceptedVersion
Publication Date
5-2016
Abstract
Using a hand-collected dataset of over 300 observations of large U.S. cities and counties, this paper investigates the extent, nature and determinants of derivatives usage in the municipal sector. Over half of our sample entities engage in derivative transactions and a vast majority of these transactions are intended to manage interest rate risk. Swaps, by far, are the most popular derivative instrument. In terms of the determinants of derivative usage, we find that the propensity to use derivatives as well as the extent of derivative usage is higher for municipalities that are larger and more financially constrained. We do not find growth to be related to municipal derivative usage. Contrary to suggestions made in the popular press, we fail to find managerial opportunism to be a significant factor in municipal derivative usage. We also find that more sophisticated managers of large municipalities and less sophisticated managers of small municipalities are more likely to engage in derivative transactions.
Discipline
Accounting | Portfolio and Security Analysis
Research Areas
Financial Intermediation and Information
Publication
Journal of Accounting and Public Policy
Volume
35
Issue
3
First Page
303
Last Page
325
ISSN
1873-2070
Identifier
10.1016/j.jaccpubpol.2015.12.004
Publisher
Elsevier
Citation
Khumawala, Saleha; RANASINGHE, Tharindra; and YAN, Claire J..
Why hedge? Extent, nature, and determinants of derivative usage in U.S. municipalities. (2016). Journal of Accounting and Public Policy. 35, (3), 303-325.
Available at: https://ink.library.smu.edu.sg/soa_research/1460
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jaccpubpol.2015.12.004