No. 139 - Italian nonfinancial firms and derivatives

This paper studies the most important literature on financial risk management to examine the characteristics of Italian nonfinancial firms that make use of derivatives and their reasons for doing so. Using the Italian credit register and balance sheet data this study extends the analysis of derivatives use to small and medium firms. The paper finds that derivatives are used frequently by nonfinancial firms. Firms using derivatives are the ones that are most exposed to financial risks and have different economic and financial characteristics with respect to firms that do not. By examining some financial risk indicators the analysis finds a relationship between high derivative exposure and financial distress. In the use of derivatives the bank-firm relationship is more concentrated than the loan relationship.