Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.18, 2015 87 The Effect of Financial Derivative use on the Performance of Commercial Banks: Empirical Study in GCC Countries during 2000-2013 Ali Bendob 1 Naima Bentouir 1 Slimane Bellaouar 2 1 Institute of economic sciences, Management, and commercial sciences, University of Ain Temouchent, Ain Temouchent, 46000 Algeria 2 Faculty of economic sciences, Management, and commercial sciences, University of Ghardaia, Ghardaia, 47000 Algeria Abstract The commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets especially in Golf Cooperation Council “GCC” countries. In this paper we investigated the effect of financial derivatives use on the performance of commercial banks in the “GCC” countries, where the study included nineteen banks distributed among the countries (Bahrain, Emirate, Qatar and Saudi) during the period 2000-2013, using the regression model with unbalanced panel data. We concluded the acceptance of dual fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank and each country. That the use of derivatives is working on the reduction of no systemic risks, which improves the performance of commercial banks especially in the crisis period. Keywords: commercial banks, Banking Performance, GCC country, Panel data. JEL Classification: C3; G32; M41. 1. Introduction The Modern financial globalization policies played a major role in change the business environment for the banking industry (Rochdi 2012), which has increased the risk in general, especially after the abandonment of the Bretton Woods agreement. In emerging markets, commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets. Financial derivatives witnessed an accelerated growth at the international level in recent years. The banking system has known instability under the mortgage crisis, the question remains about the existence of a relationship between the use of financial derivatives and the performance of commercial banks. Derivatives have been associated with a number of high-profile corporate events that roiled the global financial markets over the last tow decades, to some critics; derivatives have an important role in near collapses or bankruptcies of Barings bank in 1995, long-term capital management in 1998, Enron in 2001, Lehman brothers and American international group in 2008. Warren buffet even viewed derivatives as time bombs for the economic system and called them financial weapons of mass detractions. The GCC countries have the most important financial market in Middle East, when the use of financial derivatives has increased in the selected period, this growth can be explained by the dominance of financial derivatives markets by bank sector especially commercial banking in this countries. The goal of this study is to examine the effect of financial derivatives using on the performance of commercial banks in the GCC countries during the period from 31-12-2000 to 31-12-2013 using the regression model with panel data. The rest of the paper is organized as follows. In section 2 we present the empirical literature review. Section 3 presents the model and the methodology. The results and discussion showed in section 4, and lastly, section 5 present the main conclusion. 2. Literature Review There are many empirical studies investigating the relation between derivatives activities and commercial banks risk in order to measure the performance. REVAS A. and others (2006) investigate by the data envelopment analysis “DEA” model whether the use of derivatives by banks in Latin American (Brazil, Chile and Mexico) affect their efficiency using annual data during the period 2001-2002, the result indicates that the use of derivatives increases the efficiency of Latin American banks and the regulatory and the institutional constraints have a negative affect on efficiency of Latin American banks. SHIU Y. and others (2008) examine by Probit model with panel data the determinants of derivatives 1 Correspondent author : Ali bendob, PhD in Finance, Lecture professor, institute of economic sciences, Management, and commercial sciences, University of Ain Temouchent, Algeria 46000