Research On The Influence Of Derivatives’ Hedging On The Corporate Debt Cost

Because of its leverage and flexibility, derivatives have played an important rool for enterprises to avoid risks. With China’s accession to the WTO, and the acceleration of economic globalization, Chinese enterprises are facing increasing market risks, therefore, the use of derivatives for hedging to manage risk, has become an important activity for many enterprises. International derivatives market has matured, China’s derivatives market,however,has just started and still exists a lot of problems. Therefore, it is of great theoretical and realistic significance to study whether hedge plays a positive impact for China’s enterprises.At present, domestic research of derivatives’hedging mainly focus on the motivation, and the effect on enterprise’s value and risk, there are little researches study the influence of hedging on the cost of corporate debt. Thus, this paper selects corporate bonds as a starting point, and based on the theories of financial distress, agency and information asymmetry, to analyze the influence of hedging on the cost of corporate debt and its mechanism in detail.This paper choose the panel data from 2007 to 2013 of the listed companies which issue bonds in China’s A-share market as research sample. To examine the four hypotheses, the paper uses Stata software to carry out regression analysis. The conclusions are as follows:(1) Hedging has a significant negative correlation with the cost of corporate debt. (2) Hedging reduces the cost of corporate debt by reducing its financial distress risk. (3) Hedging can’t reduce the cost of corporate debt by reducing its agency cost. (4) Hedging reduces the cost of corporate debt by reducing its degree of information asymmetry.Finally, this paper summarizes the research conclusions, and put forward several suggestions based on the theoretical and empirical analysis. Besides, the paper expounds the shortcomings and future research direction.