Do banks use derivatives to off set economic consequences of wrong strategies: Externally growth through acquisitions too much expensive (hostile takeovers)?

Abstract

One of the unresolved questions in the matter of financial decision is why firms hedge with derivatives. Prior researches hypotize different reasons for derivatives use and empirical results are contradictory. When Managers and Owners are different an agency problem could arise in the hedging decisions. For instance, the Managers may hedge in a manner that does not maxime the value of the firm. On one side derivatives allow shifting and hedging risks but on the other side reduce the cost of enganging in speculative transactions. The paper is motivated mainly by the ongoing debate on derivatives use and seeks at answer following questions : how do corporate strategies use derivatives? What is the really goal of using derivatives: hedging or taking risks? How CEOs use derivatives to hide or delay losses or their imbalanced corporate strategies (e.g. hostile takeovers)?.