Use of derivatives by Australian companies

This study explains derivative use with multivariate analysis over a sample of 374 large Australian companies. Scale, financial distress, taxes, management compensation, agency costs, optimal investment arguments and the existence of foreign assets and foreign sales help to explain derivative use in Australia. The results conform to previous Australian and overseas research except for director share ownership and some of the agency costs measures. Given our relatively large sample, we are able to split the sample by size and we find that there are important differences in the motivation for derivative use between the larger firms and the smaller firms.