The Impact Of Financial Derivative Instruments On Firm Value Of China’s Listed Companies

Along with the development of global economic integration, the interest rate, exchange rate changes more frequently, more and more companies choose to use financial derivative instruments as risk-averse tools. However, financial derivative instruments also have a great deal of risk. Therefore, companies need to balance the benefit and the risk, for this reason, people concern more about the impact of derivative financial instruments on the value of companies. This paper researched this impact from theory and empirical evidence. First, we started from the basic theory of financial derivative instruments as well as firm value, and showed you some related concepts in this paper, followed by a combination of the concepts, we reviewed previous literature on the relationship between derivative financial instruments and firm value. Based on the literature, we analyzed the current situation and problems in the process of applying financial derivative instruments in China. Subsequently, the core of this paper, we selected the2008-2010Annual Reports of banking industry which used financial derivative instruments most as our research samples and built a multiple linear regression model empirically researched the impact of financial derivative instruments by China’s enterprises on their firm value. The empirical results showed that the use of financial derivative instruments can significantly improve the company’s Tobin’s Q value and Market-to-book value, but can’t significantly improve operating margin ratio and earnings per share. The reasons may be financial derivative instruments affect long term firm value more significantly, for another thing, the profit of banking industry is concentrated on deposits-loans surplus and intermediary business, that’s why the impacts on OPR and EPS are not significantly. Finally, we made relevant recommendations according to the problems discovered in the research.