Analysis of foreign sales revenue and use of derivatives by listed companies in India

Abstract

In today's globalized market, businesses operate across multiple currencies, exposing themselves to currency risks. Companies are increasingly turning to derivative instruments to mitigate these risks. This study compares the mean proportion of derivative usage and foreign sales between two distinct groups, upper- and third-quartile companies. The objective was to assess the differences in derivatives used by these companies. Data for the analysis were extracted from the annual reports of 18 upper quartile and 18 third quartile companies over five years (2019-2023), yielding 180 firm-year observations. A paired-sample test was conducted to compare the mean proportions between the two groups, revealing no statistically significant difference in the mean proportions of derivatives used for foreign sales. Interestingly, while upper-quartile companies generally utilize higher-value derivatives to hedge the higher value of foreign sales, the study findings show that both upper- and third-quartile companies exhibit a similar mean proportion in their derivative usage. Furthermore, the ANOVA test results illustrate the significant variations in the number of derivatives employed by the sampled companies. This study also highlights noteworthy differences in international sales revenue generated by these companies.