An Empirical Study On Chinese Agricultural Firms' Coping Behavior Against The Exchange Rate Risk

With the deepening of the RMB exchange rate regime reformation and the adjustment of the world economy, RMB exchange rate continued appreciation and showed greater volatility. At the same time, foreign-related enterprises faced unprecedented exchange rate risk among which agricultural firms were more impressionable due to own small size and the special product characteristic. In such circumstances, it seemed very important that examine how agricultural firms cope with exchange rate risk.Based on literature review and firm survey data, this dissertation aimed to examine the coping behavior with exchange rate risk of Chinese agricultural firms. Firstly, this paper proposed an analytical framework on the basis of existing research in which the coping behavior was defined as discrete variable, and used three different econometric models to examine how firm characteristics affect the behavior. Secondly, this paper also analyzed the impact of usage of derivatives on export revenue. Thirdly, this paper studied the relationship between financial strategy and operational strategy when they hedging a firm's exchange rate risk.This dissertation included four following parts. The first part constructed a conceptual model of coping behavior with exchange rate risk of foreign firms based on previous researches on exchange rate risk management, in which it is thought that external environment and firm characteristics determine the coping behavior. The second part presented an empirical analytical framework of coping behavior and examined coping behavior with exchange rate risk of agricultural firms by employing multiple logit model from the perspective of firm competitiveness. The third part developed an endogenous switching regression model to examine the determinants of agricultural firm's usage of financial derivatives to hedge exchange rate risk and the impact of derivatives on export performance. The fourth part used a simultaneous equation model to examine the relationship between financial strategy and operational strategy.Several important conclusions have been drawn. First, the hedging strategies of agricultural firms were tending to be diverse and the operational strategy is preferred one, two main forms of which consist of improving the international market access and increasing the domestic market share. Second, the determinants of operational strategy consisted of Years, Size, Markets, Export Ratio, R & D and Region. Third, the determinants of financial strategy consisted of Size, Markets, Export Ratio, Risk Appetite, R&D and Knowledge about financial derivatives. Fourth, it was found that usage of derivatives had a significant impact on export revenue among users, and users would gain greater benefits than non-users when using financial derivatives. Fifth, the operational strategy and the financial strategy were complementary, and when both strategies were combined, it would be more effective than any one strategy.Based on the above conclusions, and referring to the status of agricultural product international trade and agricultural firms in China, this dissertation put forward to some relevant policy suggestion.