Firm Value Effects Of Derivatives Hedging For Risk Exposure: An Empirical Research On Chinese Listed Enterprises

As lubricants of promoting financial globalization and world's large-scale production, derivatives can promote financial and physical economic prosperity. They can avoid risk, but also can make risk concentration, triggering financial market turmoil. After the global financial crisis occurred in the year of 2008, the function and status of futures, options and other risk management tools have been questioned. Crisis over the past year, people began to explore the development of post-crisis era. On the one hand, China's economy and business can not do without the use of derivatives to carry out risk management. The international financial market fluctuations in exchange and interest rates increasingly violent, with more and more Chinese companies to join the ranks of cross-border trade and manufacturing, raw materials and products to face both sides of the commodity price volatility, making Chinese companies pay more attention to the use of derivatives to manage risk. On the other hand, the risk management practice of hedge in the crisis caused some confusion and negative impact. Thus, we are eager to know whether the use of derivatives can help companies effectively manage risk and enhance firm value.In this context, this paper makes the theoretical and empirical research on the value effect of the use of derivatives of listed companies to conduct risk management. Firstly, we analysis Chinese derivatives market development and the situation of Chinese listed companies'use of derivatives for risk management. Then, we draw on risk management and enterprise value theory for a detailed analysis of the value of risk management. This paper selects commodity price risk and exchange rate risk of the listed company's 2007-2009 financial report as research samples, and makes an empirical examine whether derivatives can improve firm value, using regression analysis model. Finally, the paper provides relevant recommendations to the risk management of listed companies.The empirical results show that:(1) The number of listed companies which use derivatives to conduct risk management is a little and hedge scale is not high. (2) The use of derivatives for risk management and firm value is significantly positive correlation. We find that the market value of listed companies which use derivatives for risk management are significantly higher than the non-users, and the use of currency derivatives make a bigger role than commodity derivatives. (3) The larger derivatives hedging, the higher the firm value. We find that the larger derivatives hedging, the higher the value of listed enterprise, and the value effect of the commodity derivatives hedging is greater than the exchange rate derivatives hedging. (4) The functions of derivatives hedging are better than those non-derivatives hedging. By comparing the derivatives hedging and those non-derivatives hedging on firm value, we find that non-derivatives hedging have little effect on the business; derivatives hedging is better than non-derivatives hedging and can not be replaced by non-derivatives hedging. In view of this, this paper presents some suggestions:Accelerate the development of derivatives market, strengthen risk control, improve financial supervision, improve the information disclosure rules for derivatives usage of listed companies, encourage rational use of derivatives for risk management, improve enterprise's internal governance mechanisms, and speed up training talents on derivatives.