Wharton Survey* of Derivatives Usage by
U.S. Non-Financiai Firms
Gordon M. Bodnar, Gregory S. Hayt, Richard C. Marston, and Charles
Gordon M. Badnar is Assistant Profe,s,-ior of Finance at The Wharton School. Univer.'iity of Pennsy.'vania. Pluladvlphiu. PA.
Gregoi-y S. Havt is Director at CIBC Wood Gundy Fitiancial Products. New York. NY. Riehard C. Marston is James R.F. Guy Professor
of Finance and Economics at The Wharton School. Univer.sitv of Pennsylvania. Philadelphia. FA. Charles W. Smithson is
Director at CIBC Wood Gundv Financial Prodticts. New York. NY.
• While financial derivatives have been around for a very
long time,' the pa.st decade and a half has seen the variety
and complexity of the available derivatives increase
markedly. The broad array of derivatives and derivatives
strategies that exist today enhance the ability of firms to
manage their financial risk exposure in an era characterized
by highly volatile exchange rates, interest rates, and
commtKJity prices. But the same derivatives that permit tlrm.s
to reduce risk also provide opportunities for risk-taking by
firms, thereby complicating the task of overseeing financial
activities within firms. As a result, the question.s regulators,
rating agencies, and shareholders have raised about risk
management practice have taken on greater urgency. The
Wharton survey was designed against this backdrop of
increasing interest in derivatives practices by non-financial
Early in 1994. we began planning a survey that would be
sent to non-financial corporations in the United States. Since
banks both use and sell derivatives, we chose non-fmancia!
corporations in order to focus on the activity of end users.
The survey, which is reprinted at the conclusion of this
article, contained questions on the organization of the risk
management function, strategies and goals, reporting, and
One of the primary objectives of the project was the
creation of a database that would be suitable for academic
*The 1994 survey was sponsored by the Chase Manliallan Bank. N.A. The
1995 survey will be sponsored by CIBC Wood Gundy.
'One of our favorite examples is the dual currency. conimodit>-c(invL'rtible
bond Issued by the Confctleraie Slates of America in IJ<63: however, we
have also found reference to what appears to be an option on olive presses
ill a story about Thalos the Milesiiin in Aristotle's
Studies of risk management. This meant sampling from a
large population and incorporating important firm
chiiracteristies, such as industry,
and capital structure.
It was also important to avoid is much as possible a
selection bias toward corporations ihat were already active
derivatives users. To address those concems, a procedure
was established for selecting a riindom sample of
non-financial firms from the 1993 COMPUSTATdatabii.se.-
The procedure resulted in the selection of 2,000 firms from
over 40 industries, as defined by tw>digit S.I.C. codes.