Foreign currency and rate derivatives on firm value: A Shari'ah Experience

Abstract

This study examines the relationship of foreign currency and interest rate derivatives on firm value of Sharī ͑ah-compliant firms, controlling for managerial ownership, access to financial market, firm size, leverage, firm risk, industrial diversification, industry effect, investment growth, time, and year crisis. The results of the study are robust, based on first, the various measurements of firm value (Tobin’s Q, ROA and ROE), second, the use of system-GMM estimator and third, 2SLS technique. This study concludes that foreign currency derivative significantly contributes to firm value of Sharī ͑ah-compliant firms. However, interest rate derivatives report insignificant influence to firm value.