Effect of financial derivatives on the performance of commercial banks in Nigeria Online publication date: Fri, 21-Jan-2022
by Chinedu John Uchechukwu; Regina G. Okafor
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 11, No. 6, 2021
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.
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