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The Role of Derivatives in Corporate Finances: Are Firms Betting the Ranch?
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******************************** The Role of Derivatives in Corporate Finances: Are Firms Betting the Ranch? http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=1346 Many American corporations use derivatives conservatively, to offset risks from fluctuating currency and interest rates. But over the years, companies such as Procter & Gamble and Gibson Greetings have run into serious financial trouble using derivatives in a more dangerous fashion -- to speculate. Is high-risk behavior common? Are shareholders in for ugly surprises if executives' derivatives bets go sour? To get a better picture of derivatives' role in corporate finances, Wharton finance professors Christopher C. Geczy and Catherine Schrand and their co-author, Bernadette A. Minton of Ohio State University, re-examined confidential responses from an earlier study that focused in part on derivatives. Their findings are in a paper entitled, "Taking a View: Corporate Speculation, Governance and Compensation."
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