Title: Effect of financial derivatives on the performance of commercial banks in Nigeria

Authors: Chinedu John Uchechukwu; Regina G. Okafor

Addresses: Department of Accountancy, Faculty of Business Administration, University of Nigeria, Enugu Campus, Nigeria ' Department of Accountancy, Faculty of Business Administration, University of Nigeria, Enugu Campus, Nigeria

Abstract: This paper investigates the effect of financial derivatives on the performance of commercial banks in Nigeria. The study adopted derivative financial assets and derivative financial liabilities as independent variables, while earnings quality and sensitivity to market risk were adopted as dependent variables (measures of bank performance). The generalised least squares (GLS) panel regression analysis was employed to estimate the hypotheses formulated. Derivative financial assets were found to have a positive effect on earnings quality and a negative effect on sensitivity to market risk. On the other hand, derivative financial liabilities were found to have a negative effect on earnings quality and a positive effect on sensitivity to market risk. The study concluded that derivative financial assets tend to improve the performance of commercial banks in Nigeria and reduce their financial risk exposures than derivative financial liabilities.

Keywords: financial derivatives; risk management; hedging; commercial banks in Nigeria; sensitivity to market risk; earnings quality; Nigeria.

DOI: 10.1504/AAJFA.2021.120463

Afro-Asian Journal of Finance and Accounting, 2021 Vol.11 No.6, pp.834 - 860

Received: 21 Mar 2020
Accepted: 28 Sep 2020
Published online: 21 Jan 2022 *

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