The Research On Impact Factors Of Derivatives Use

Since Smith and Stulz established the hedging theory on the basis of MM theory in 1985, many scholars continued the study on the theoretical and empirical research of derivatives use of the company for thirty years, but so far there is still not a widely accepted theoretical framework to guide the practice of risk management. More and more scholars have been attracted into the research on risk management by derivatives use. It is not only a brand new field in China, but also one of the hot issues in the world, in which a large number of scholars are interested. As an important financial strategies of companies, the derivatives use not only relates to the corporate capital structure, dividend policy and investment decision at the micro level, but also affects the value of the company and the overall strategic arrangements. Scholars both home and abroad have provided significant guidance to the creation of this article, thus I am able to integrate and analyze extensively for a conclusion. Through literature review, it is found that, up to now, most of theoretical and empirical research of derivatives use is from the western developed countries, especially the United States, where the derivatives market is well developed with high level of corporate governance and perfect legal system, and it lacks systematic research on impact factors of derivatives use in Chinese system background. Some Chinese companies are at a loss to their decision-making of risk management, which often leads to make a wrong decision and ultimately results in great loss. At the same time, from the existing literature, there is very limited research on how the corporate characteristics and corporate governance influences to derivatives use. Therefore, starting from this aspect, on the basis of in-depth analysis of Chinese system background, this article focuses on the research on the impact that corporate characteristics and corporate governance structure to derivatives use and provides new evidence for the modern corporation to test the theory of risk management.The main content of this thesis is:Firstly, the article poses the questions in the introduction and defines the objects of study, content and innovation. Secondly, by reviewing of risk hedging theory of company and studying of risk hedging factors, it illustrates the basic theories of derivatives use. Thirdly, by studying Chinese system background, derivatives development and the present derivatives use situation, it demonstrates the factors affecting reality force behind the hedge risk. Fourthly, using risk hedging model combined with theoretical analysis of Chinese system environments, it studies how the corporate characteristics influence to company’s derivatives use. Using western classical hedging theory combined with the Chinese system background, it theoretically deduces how the mechanism of corporate governance in companies influences the derivatives use. Fifthly, systematically integrating hedging model with company governance theory and combine Chinese system background, it illustrates comprehensively about the factors influence on China listed companies’ decision-making by derivatives use. Finally, it summarizes the conclusions of this thesis and proposes innovative suggestions for the companies to derivatives use. This thesis consists of eight chapters as follows.Chapter 1 is the introduction. It briefly introduces the article about its research background and significance, the goal and content, the research framework and methods as well as the definition of related concepts, and concludes with improvement and innovation etc.Chapter 2 is literature review and commentary. It contents two parts:the first part mainly introduces the theory of hedging irrelevance, shareholder wealth maximization (including tax hypothesis, reducing the financial crisis cost hypothesis, reducing the agency cost hypothesis and avoidance "insufficient investment" hypothesis etc.) and managerial utility maximization theory. The second part expresses the review of the domestic and foreign companies to derivatives use and comments on the problems and shortcomings of existing literature, from which the author masters the research dynamics both home and abroad, and provides the basis for the definition of the variables empirical research in this paper.Chapter 3 is the theory basis of derivatives use. This chapter discusses three related theoretical basis of derivatives use:MM theorem and extension theory, contract theory and principal-agent theory. Theory of hedging irrelevance is based on the MM theorem. The shareholder wealth maximization theory and managerial utility maximization theory are expanded from the MM theory, and applied to the principal-agent theory and contract theory in its expansion process.Chapter 4 is analysis with China system background. Many studies pointed out that system factors play an important role in the corporate hedging strategy. By analyzing the Chinese system background, we can provide the realistic background and theoretical basis to explain the problem of China listing companies’ derivatives use. To achieve this goal, this chapter analyses the Chinese system one by one from five aspects:corporate governance mechanism, income tax system, the efficiency of capital market, interest rates liberalization and evolution of exchange rate system.Chapter 5 is analysis on the current situation of derivatives development and use in China.This chapter firstly expresses the current situation of Chinese derivatives both ETD and OTC and concludes some of the main problems. Secondly, the author analyses in detail about the derivatives use by China listed companies in four aspects respectively: industry distribution, regional distribution, asset size distribution, and derivatives use distribution.Chapter 6 is theoretical and empirical research on derivatives use influenced by corporate characteristics. According to the hedging theory model, combined with the Chinese system background, this chapter theoretically analyzes the impact caused by the corporate characteristics, using panel data, with the empirical research and construction of Logistic model and Tobit model. By comparison of parameter test (T test) and non-parametric test (Mann-Whitney U test) on companies in different industries and regions, it infers whether there are significant differences between the companies with derivatives use and the counterpart.Chapter 7 is the theoretical and empirical research on derivatives use influenced by corporate governance. The hedging theory and corporate governance theory combine with the China system background, which theoretically deduces the relationship between corporate governance and derivatives use, by constructing MIMIC structural equation model for empirical study. It finally concludes how the corporate governance influence derivatives use. By comparison of parameter (T test) and non-parametric test (Mann-Whitney U test) on corporate governance, it infers whether there are significant differences between companies with derivatives use and the counterpart.Chapter 8 is main conclusions and policy suggestions. Based on the analysis of the above chapters, it summarizes the main conclusions and proposes policy suggestions to promote the derivatives use by China listed companies. In the meantime, the article points out the limitations of the research and the suggestions to the further study. According to theoretical and empirical research above, we come to conclusion that:Fisrt, compared with developed countries, the depth and breadth of the derivatives use by China listed companies is still very limited, which remains to be further developed.Second, the derivatives use is widely influenced by industrial, regional, the external legal environment of the China listing companies, and there are significant differences. In industry distribution, the derivatives use of the China listing companies concentrates in manufacturing, mining, transportation, storage and postal industry. In regional distribution, the companies located in east coastal areas are much more than that located in the central and western regions in the derivatives use. In external legal environment, offshore listed companies (B shares, H shares and N shares listed companies) take the lead in the derivatives use.Third, the degree of derivatives use increases with firm size, leverage and dividend payment. In the regression analysis of derivatives use, the coefficient of growth opportunities is negative but not significant; the effective tax rate appears positive correlation to derivatives use but not significant, while assets liquidity and profitability results no obvious influence.Fourth, corporate governance is the key factor in the derivatives use. The companies with high level governance (such as companies with large shareholder alliance etc.) are more likely to apply for derivatives. On the contrary, the companies with low level governance rarely use derivatives. The extent of derivatives use of companies increases with the degree of stock proportion restriction, the proportion of corporate shares, quantity of senior management shareholding and salary of senior executives, and decreases with the increase of ownership concentration and the proportion of state shares.The innovation is mainly reflected in following three areas:First, this article is the first time to adopt the large sample (non-financial listed companies) to study the impact factors of derivatives use. At present, the past research is always based on selected sample, which are mainly the companies from individual industry or individual cases. The results of this study will help to learn the current situation of derivatives use of China listed companies, which provides strong supportive reference for the development and innovation of derivatives and specification of risk management. Second, the article makes a systematical study on the Chinese system background and the current situation of derivatives use, explained the derivatives use by China listing companies in different industries, regions, which provides a way of study in the research on the derivative use by China listed companies. Third, with the consideration of Chinese system background, it deduces the theory of corporate governance influence for the derivatives use. The studies are based on panel data, empirical application of MIMIC structural equation model and comparison by parameter test and nonparametric test, which takes the lead in the research of derivatives use.In the end, because of personal capabilities and the limitation of conditions, there are still some defects. First, because of the shortage of the accounting information, there is no supportive data of total par value (nominal principal amount) of derivatives use for the listed companies. The measurement for derivatives use is estimated for derivatives fair value divided by firm size. Second, financial listed companies are not included in the study. Without the information of these special companies, the estimated coefficients may be biased and inconsistent. Third, as an important financial policy, the derivatives use should be related with other financial policies in decision-making, such as corporate investment decision-making, capital structure decision-making etc. Without the consideration of other financial decision-makings, the result is probably not comprehensive. The above limitations will be discussed thoroughly in later research.