Hedging with Financial Derivatives and Firm Performance of Consumer Goods Companies Listed on Nigeria Exchange Group

Abstract

Hedging with derivatives is a common strategy to manage foreign currency risk, interest rate risk, commodity price risk and mitigating potential losses or gains that might arise from fluctuations in the market. This study was conducted to reveal findings on the impact of hedging activities using derivatives on the financial performance of consumer goods companies listed on Nigerian Exchange (NGX). The independent variables for the study are foreign currency hedge, interest rate hedge and commodity price hedge. Data were collected from Ten (20) consumer goods companies quoted on Nigerian Exchange covering 2018 to 2022 financial years. The results of hypothesis testing reveal that hedging with derivatives has a significant effect on firm performance. This findings supports the findings of Alan and Gupta (2018) and Lenee and Oki (2017), who conclude that the use of hedging can minimize the volatility and has a positive effect on firm value. As a general recommendations, it is important to note that regulating the derivatives market is essential to ensure stability, transparency, prevent excessive speculation, manipulation, and enhance fair practices in the financial system.