IMPACT OF DERIVATIVE INSTRUMENTS ON FINANCIAL STATEMENTS: PERSPECTIVE OF INVESTORS AND ANALYSTS

Abstract

Financial derivatives reduce risks and boost firm value. However, companies should clearly disclose derivatives instruments’ purpose as they help investors make sound decisions and analysts analyze a company’s financial health. Therefore, the current study examined the impact of derivative instruments on financial statements from the perspective of investors and analysts. The primary data was obtained through a structured questionnaire from 120 respondents (100 investors and 20 financial analysts) from 5 companies in India that use derivative instruments. Respondents were selected as per convenience and SPSS 25 has been utilized for data analysis. The results showed a statistically significant correlation between the consideration of derivative instruments, investment decisions, and financial health analysis from the perspective of both investors and financial analysts. Further, the study found that perceptions and attitudes of investors and analysts regarding the risk associated with companies heavily relying on derivatives significantly affect their investment decisions as well as investment strategies. It has been concluded that effective use of derivatives can be a valuable risk management tool, but transparent disclosure and careful assessment of their influence are essential for informed investment decisions. The study will be helpful for stakeholders and policymakers to be able to make sound investment decisions and effective investment strategies.

Keywords: Derivative Instruments; Financial Statements; Investors; Analysts; Risk Management; Investment Decisions; Investment Strategies