This study aims to examine the effects of the use of financial derivatives on the magnitude of accrual-based earnings management, earnings persistence, and market mispricing. This study uses a cross-country analysis with the scope of ASEAN countries, consisting of the Philippines, Indonesia, Malaysia, and Singapore. By using samples of corporate financial derivatives users, the findings indicate that there is a trade-off between the use of financial derivatives for hedging purposes and the magnitude of accrual-based earnings management. The study also finds a complementary relationship between the use of financial derivatives for speculative purposes and the magnitude of accrual-based earnings management.

When the use of financial derivatives is associated with the persistence of earnings components, this study finds that the purpose of financial derivatives usage does not cause any difference in the earnings persistence between companies using financial derivatives for hedging purposes and those using financial derivatives for speculative purposes. Finally, this study also finds empirical evidence that earnings expectations embedded in stock returns of financial derivatives users for hedging purposes reflect the difference in persistence of cash flow component more accurately as compared to financial derivatives users for speculative purposes. To the best of our knowledge, this is the first study that associates the use of financial derivatives with earnings persistence and market mispricing.