A Study On The Impact Of Usage Of Derivatives On Firm Value

With the increasing risk of Non-insurable and the wave of financial liberalization, the demand of using Derivative Instruments to avoid the risk of both international and domestic markets is growing fast and becoming more common. Derivatives for hedging, however, if used improperly, will bring the company a huge disaster. Many of those huge-loss cases due to the improper use of derivatives at home and abroad come to our attention again and again in recent years. Therefore, to study how to use derivatives with the company value has caught wide attention between theoretical and empirical sphere.Studying abroad on derivatives are more mature, and empirical findings are more uniform, which points out that using derivatives can reduce earnings volatility then reducing the cost of tax or financial crisis to enhance corporate value. Domestic research is lagging behind, relevant theoretical basis and analysis framework are almost from the western existing mature theory, the research content are almost about derivatives introduction, supervision, and the related information disclosure and risk control, research methods are more normative research, empirical findings also are not uniform.This article is based on domestic and foreign research, first introducing the concepts related to derivatives and the origin and development of the system, then the empirical research on the basis of the theoretical analysis and empirical evidence. Selected machinery, equipment, instrument and metal, nonmetal industry performances in the year2007-2010as samples, I study the influence on the use of derivatives on firm value from comparative study by horizontal and vertical. The result shows that, in our country, compared to companies without derivatives, using derivatives has a significant positive effect on firm value; Compared to the previous use of derivatives, using derivatives has an positive effect on Tobin’sQ and an negative effect on ROE, the former is not significant, the latter is significant; Hedging effect of the company using derivatives has no significant positive effect on firm value. In addition, Lev and Ta have significant negative effect on firm value, growth has a significant positive effect on firm value.After empirical study, this article provided several policy recommendations related to the development of derivatives in the government level and corporate level. Finally, by combining the limitations of this article, this paper provides an outlook of the future research.