An empirical study of usage of interest rate swaps among Indian mid-cap corporates
Journal of Advances in Management Research
ISSN: 0972-7981
Article publication date: 9 January 2024
Issue publication date: 19 April 2024
Abstract
Purpose
Interest rate derivatives (IRDs) are the essential components of financial risk management and are used across various industry sectors. The objective is to analyze the differences in approach to managing interest rate risks between the Indian corporates that execute IRDs and the ones that do not.
Design/methodology/approach
Interest rate fluctuations require Indian corporates to hedge their exposures in foreign currency interest rates. This is all the more true for mid-sized corporates because of their balance sheet exposures. Additionally, they may not have the resources to formulate risk management policies. This paper analyzes data collected from financial statements of a diverse set of companies that use IRD and helps in formulating such a strategy.
Findings
The results indicate significant differences for some of the parameters like information asymmetry and agency cost between users and non-users of IRDs. The study further suggests causality between users of derivatives and parameters like size, growth and debt.
Research limitations/implications
The study compares users and non-users of IRDs, thereby identifying factors unique to users of IRDs. It also studies causality relations which explain the motivation to do IRDs. Thus, it enables risk managers to use this as a reference point to decide on their strategies.
Originality/value
While there are multiple studies across geographies and sectors including commercial banks in India on the usage of interest rate swaps, this study focuses on Indian mid-tier corporates. Furthermore, the study distinguishes between users and non-users based on financial parameters, which in turn would provide a framework for decision-hedging strategies.
Keywords
Acknowledgements
The authors would like to express their gratitude to the Editor in Chief and the reviewers for their guidance and feedback which helped to add value to this paper.
Citation
Chatterjee, S. and Mohanty, R.P. (2024), "An empirical study of usage of interest rate swaps among Indian mid-cap corporates", Journal of Advances in Management Research, Vol. 21 No. 2, pp. 228-244. https://doi.org/10.1108/JAMR-05-2023-0111
Publisher
:Emerald Publishing Limited
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