The Research On Incentives Of Corporate Hedging

The volatility of the financial market and the aggravation of the risk cause the necessity of risk management. The financial engineering and the development of the information technology offer strong technical support for risk management of low cost, high efficiency and high accuracy. But these can only show the external incentive of the corporate using the financial derivatives. These cannot explain the basic incentive of the corporate using the financial derivative. In general, there are three purposes that the corporate holds the derivative: hedging, speculating and arbitrating. In 1998, Bodnar, Hayt and Marston investigated 1928 non-financial companies in which is engaged in risk management of U.S.A. According to survey results, nearly 50% of U.S.A. non-financial corporate used derivatives to do hedging. The final purpose of the corporate is to maximize firm value. The fact that most corporate utilize the financial derivatives to do hedging indicates that hedging may increase the value of the corporate.According to M-M propositions, if the perfect capital market supposes are satisfied—there are no asymmetric information, taxes, agency cost, bankrupt cost, etc., on the market, Because shareholders can change their own risk exposure through duplicating the financial policy of the corporate and doing business on the capital market , corporate hedging can not increase firm value. Namely, under the perfect capital market, corporate has no incentive of hedging. The existing capital market imperfections are, therefore, the basis for various positive theories about the economic impact of corporate hedging on firm value.This dissertation takes the non-financial corporate as the research object. Under the existing of asymmetric information, taxes, agency cost on the imperfect capital market, from the respects of corporate investment and financing decision, managers' compensation, hedging disclosure, etc., it analyses the incentive of corporate hedging.This dissertation has made some research on corporate hedging as the following aspects:(1)This dissertation explains the meaning of hedging. Hedging has changed from a traditional one of merely risk aversion and shifting to a more comprehensive, dynamic and value maximized risk management decision. Firstly, this dissertation studies the basic analytical method of hedging—no-arbitrage equilibrium analyses. Then it describes the basic principle of hedging by means of differential equation method and Tayor's formula method. It explains the meaning of hedging respectively from technology, analytical method and intuitions. Thus it helps to understand corporate hedging intuitively. (2)From the viewpoint of the investment and financing decision, this dissertation studies the corporate hedging. Firstly, it explains the impact of the corporate hedging on investment and financing decision from the viewpoint of financial distress and agency cost of debt. Then, hedging, as a kind of signal, can make the external investor of firm appraise the investment and financing activity of the corporate effectively. Because the external investor cannot discern the impact of the fundamental quality of the firm on the firm's cash flow. An unfavorable risk will thus lead to a certain underestimate of the firm's investment opportunities and will increase the cost of its external financing. In the same way, a favorable risk will decrease the cost of external financing. Fluctuations in the cost of these external financing, distort the firm's investment policy and reduce its value. A hedging policy is thus likely to increase the value of the firm by moderating the asymmetric information problems between the firm and the external investor. Finally it makes some research on corporate hedging on our country's futures market.(3)This dissertation studies the corporate hedging from managerial compensation. Firstly it systemic summarizes the theories about the managerial risk choices based on the principal-agent theory and decision theory. With the aid of managerial compensation contr...