Empirical Research On The Impact Of Derivatives To Hedge The Value Of The Enterprise

With the collapse of the bretton woods system and relieve of regulation Q manyenterprise exposure cannot find a good way to do the risk management under thedramatic risk volatility. At this time, it means the derivatives show time was coming.According to the situation of using financial derivatives, we can see derivatives hedgingwere being favour for using by enterprises as more and more. However, thecharacteristics of financial derivatives was higher leverage higher yield caused it be atool of speculative arbitrage in business. In2008, many enterprises suffered huge lossesbecause of the financial crises in China. For example, Eastern Airlines adopted jet fueloptions for hedging but losses of CNY6.2billion. Jiangxi Copper losses CNY1.32billion, because of its futures contract the raw materials of copper. There were manystate-owned enterprises, local and private enterprises used derivative financial tools forhedging, at last faced huge negative situation, just like Air China, China Cosco,NanShan power and Many media to disclosure of enterprise loss event. However, therewas no one to explore the reason why the enterprise losses, and the present derivativesusing situation in China. Is companies using derivatives for arbitrage or hedging? At thepresent stage, enterprises adopt derivatives influences the enterprise value was positiveor negative. In the use of derivatives "love-hate relationship", we should be how toobjectively evaluate the derivatives.This thesis is based on the application of financial derivative instruments in thefinancial reports of listed companies from2007to2011that the author retrieved bycninfo.com.cn. According to those materials, the author counted the hedge items oflisted companies in our country and did analysis the actuality of application. Then wecan get the rate of the companies that use derivative instruments and examine if theindustry concentration effect exists. Simultaneously, the author can gain thecompanies’ motivations of using derivative instruments on the basis of CAS22, CAS23and CAS37and the fair value and the gains and losses. Then with the statistic datafrom CSMAR we can do the regression examine. The result that the thesis should getis that hedge is the main aim of applying the derivative instruments for listedcompanies in our country as most foreign literature. However, there are only10percent companies’ hedge is highly effective in all companies that use derivativeinstruments.And there are few companies that apply the wrong derivative instruments for hedging and the situation of misoperation, so that these companies actually usederivative instruments for speculation. The thesis use the Tobin’s Q ratio and MB asthe proxy variable. By analyzing the empirical results of respective year, we should seethat the application of hedge is positively correlated with enterprise value which meanshedging premium.As a tool to manage risk that enterprise faced it can be operated artifacialy. theso-called "double-edged sword" effect actually depends on the motive and theoperating aprropriateness. As the huge net loss was caused by a few firms that usedderivatives to manage the risk, It is not good to judge it by net profit and loss situation.And we know that our country’s accounting standards on derivatives hedgingregulations is not perfect therefore many enterprises use derivatives as a speculativetools. This paper through the above results and the revision of derivatives hedgingaccounting standards in China should affect the decision of enterprise using derivatives.It also may have an effect on the regulation of the derivatives markets and the revisionof accounting standars.