Research On The Relation Of Hedging By Derivatives And Enterprise Value

With the accelerated pace of International operations, Chinese enterprises inevitably face risks of interest rates, exchange rates, important commodity price volatility. More and more Chinese enterprises begin to use derivatives to manage the financial risks. Hedging has become a key component of many business activities. However, for the characteristics of financial derivatives, such as leverage, complexity and speculation, high yield and high risk co-exist in them. If enterprises improperly use or excessively speculate, it will bring huge losses to the enterprises. In this context, whether it should use derivatives, how to treat derivatives objectively and impartially, how derivatives make effect on enterprise value, triggers widespread concern of the community.Based on derivatives, with the core of enterprise value, this paper analyzes the influence of hedging on the corporate financial risk, and thus the impact on the enterprise value to strengthen corporate awareness to derivatives. This article uses EVA as a surrogate marker of the enterprise value. Compared with the traditional accounting income indicators, EVA is more comprehensive, more emphasizes long-term interests of enterprises. And in the case of the current effectiveness of China’s capital market and the value found in the function is not yet mature, EVA is more reliable assessment of the value for the enterprise than the discounted cash flow method and Tobin-Q.First, this paper described three important concepts-derivatives, hedging and enterprise value, discussed enterprise value theory, and introduced the enterprise value evaluation methods and the factors affecting enterprise value. Second, by using the statistics of companies of machinery, equipment, instrument industry from2009to2011, we analyze the influence of hedging on the corporate financial risk, and thus the impact on the firm value. Concluded as follows:The use of derivatives hedging has the positive correlation with enterprise value significantly, hedging can significantly reduce the volatility of corporate cash flow, cash flow volatility has a decisive role in the enterprise value, which proves hedging will help improve enterprise value. Finally, make a whole summary of the research findings. Next, combination of awareness of the status quo and empirical analysis, from the point of view of corporate external derivatives regulatory measures are explored, and from the point of view of the internal risk control of derivatives is discussed. Then the limitations of the study and prospect are pointed out.