Causes Of Hedging By Derivatives And Its Impact To Enterprise Value Of Chinese A-share Companies

The companies are facing to the fluctuation of commodity prices, interest rates and exchange rate during the daily operation, which make companies must take some measures to avoid risks. More than 90% of the world top 500 companies prefer to use derivatives to avoid the risk they face, which certify its strong competitiveness. At the same time, our companies are taking part in using it gradually, but nowadays more and more of them gain losses from derivatives, which make the weakness appears.This paper researched the causes of hedging by derivatives and its impact to enterprise value under the background above. By looking up the relevant literature, I reviewed previous studies first, which strongly connect with my research. Then the paper states the history of derivatives in our country along with the usage of our companies in different industries and different kind. After that the paper talks about the causes of hedging and its impact to enterprise value. The opinion of first part is actual tax rate, asset-liability ratio and seven other variables are main causes of hedging, by using logit model and eviews to analyze the data. The assumptions of second part is hedging can improve enterprise value, which is based on previous studies and theories. This time I choose OLS model with eviews to check the assumption. Then the result says that asset size, asset-liability ratio, the proportion of managerial ownership with hedging behavior have a significant positive correlation, the impact of interest coverage ratio is negative, which support the previous assumptions, also the conclusion are same with western researchers. But the effective tax rate, the proportion of fixed assets and operating revenue growth rate has no significant correlation with hedging by derivatives. In mining and transportation industry hedging is positive to enterprise value, in which the assumption gets strongly support. But in agriculture, manufacture, electronic and information industry, we can’t get the similar conclusion.Analysis the causes of derivatives and the impact on enterprise value, the enterprise will know how to use them effectively on risk management, enhance improve the conscious of it. The company use derivatives legally will make the cost and price more precise as well as do good to our futures market, which will make the market perfectly on both management and operation. Its meaning to boom our economy from all angles is of great significance. Researches domestically on hedging are mainly based on the theories of financial engineering abroad, and use lots of models to discuss the risk management on hedging, which is specially make an important part on practical analysis. This paper’s purpose is test the impacts of derivatives based on the theories and the usage of hedging by companies, then discuss whether derivatives can improve enterprise value, which have academic value.Then the paper propose the effective suggestions on the usage of derivatives, which are do good to the policy making, the market building and the risk management of the enterprise. Methods above have realistic meaning.Based on the weak point of the paper and the development on our derivatives, we suggest the learners in the future can study in using derivatives and corporate finance with the following points:with the improvement of laws, the companies will reveal more information in the financial reports, the learners may know more about the purpose of using derivatives. Also they may choose different variables to make the result more accurate.