An Analysis Of The Value Effect Of Hedging In Chinese Enterprises

As China’s market economy and the derivatives market continues to improve, more and more companies use derivatives to hedge risk will be the trend. Compared with Europe and other developed countries, China’s derivatives market is still in infancy stage. Because of the improper use of derivatives, many companies bear enormous losses, and people doubt if the use of derivatives will reduce risk or enhance the corporate business risk? Can it increase business value? In this paper, we are going to investigate the impact on enterprise value of using derivative instruments to management risk.Based on relevant literature on how derivatives would affect enterprise value and transmission mechanism, through manual searches of the 2007-2013 A-share listed company’s financial reporting to obtain the overall situation and characteristics of situation of China’s company. Based on the qualitative analysis, I selected sample companies in Shanghai and Shenzhen 300 Index from 2007 to 2013, to analyze relationship between business value and hedging, found that companies use derivatives to hedge risk weak reduced the enterprise value. To better understand the results of the empirical analysis, I selected a large number of business cause huge win and a huge loss by hedge, to explore the factors that affect hedging effect from the macro and micro levels.The innovation of this paper, firstly is by searching company’s annual report by hand to obtain first-hand information on the use of derivatives, and got a comprehensive understanding on characteristics of hedge of China’s company. Secondly on the basis of empirical research, this paper use case analysis to further explore the empirical effects of hedging reasons, in order to better understand the results of the empirical analysis.