Financial derivatives usage dynamics in Asia Pacific region

This study investigates the determinants and outcomes of financial derivatives usage among non-financial firms across nine Asia-Pacific countries—Australia, India, Hong Kong, Japan, Malaysia, Singapore, South Korea, Thailand, and Taiwan—using 15,316 firm-year observations over the 2022–2023 period. Firm-specific factors, governance mechanisms, and financial characteristics are examined to assess their influence on derivatives usage and its impact on firm value, performance, and cost of capital. We find that derivatives usage positively impacts firm value, particularly through foreign currency derivatives, which mitigate exchange rate risks in trade-dependent economies. Derivatives usage also significantly reduces the cost of equity (Ke) and the weighted average cost of capital (WACC) by mitigating financial risk and enhancing perceived financial stability. The impact is stronger for firms using foreign currency derivatives and those with effective governance mechanisms. The study highlights the context-specific nature of derivatives usage, emphasizing tailored strategies based on firm size, governance structures, and financial constraints to optimize outcomes. • Derivatives use raises firm value, especially via foreign currency hedging. • Hedging lowers Ke and WACC by mitigating financial risk exposure. • Governance quality amplifies value and financing-cost benefits. • Effects vary by firm size, trade exposure, and financial constraints. • Evidence from 15,316 firm-years across nine Asia-Pacific markets (2022–2023).