Financial Derivatives Usage and Monetary Policy Transmission: Evidence from Korean Firm-level Data

Abstract This study empirically investigates the impacts of the financial derivative usage on corporate debt capability and stock return using Korean non-financial firms’ data from 2002 to 2012. Empirical results support the conjecture that financial derivatives tend to increase debt capability by transferring risks and reducing financial cost. Derivative user firms turn out to have better stock market performance especially during period with the tight credit market. Unexpected contractionary monetary policy is negatively correlated with corporate stock return and the negative relationship becomes more significant in case of the derivative non-user firms. Financial derivatives usage of the individual firm plays an important role in increasing debt capability and achieving better stock performances.