|dc.description.abstract||This thesis addresses how firms’ risk communication and derivatives usage affect firm value
and profitability. We have conducted content analyses of 447 annual reports on 66
companies listed on the Oslo Stock Exchange for the years 2006 to 2014. We used risk
communicating words, as a proportion of the annual reports’ total words, and NUES ratings
provided by EY, as variables for risk communication. For derivatives, both a dummy
variable for usage/non-usage, and fair derivative values were investigated. The fair
derivative values were measured as a proportion of the companies' total assets, where we
considered asset derivatives, liability derivatives, and net derivatives.
From the bivariate analyses, we discovered that risk communication had a non-linear
relationship with firm value and profitability. At the same time, we observed that companies'
focus on, and work with, risk communication had increased in the period from 2006 to 2014.
This builds on the findings of Kallenberg (2002), which found that companies' risk and risk
management efforts had increased from 1987 to 2001. In addition, from the initial analysis
of the effect of derivatives usage, we found a negative correlation with firm value, but
positive for profitability.
The results of the multivariate analyses indicated that risk communication did not have any
measurable impact on profitability or firm value. For the derivatives usage, we found that
companies that use derivatives have higher firm value and profitability than non-users. The
use of financial derivatives to reduce risk therefore appears to give a competitive advantage
over those who do not choose to use derivatives. This supports Smith and Stulz (1985) who
argue that financial risk management has an effect on firm value, in addition to several
renown empirical studies.
From fair values, we found that asset derivatives have a negative impact on firm value, but
positive for profitability, given that you control for companies' profitability in measuring
firm value. For profitability, we found that the net value of derivatives had a positive effect,
but did not affect firm value. Liability derivatives are shown with no significant impact on
either firm value or profitability.||nb_NO