The Effect Of Derivatives Hedging On Corporate Performance

With the accelerated pace of China’s International Operations, more and more enterprises are actively involved in cross-border trade and manufacture. This situation brings a variety of volatility risk in interest rates, exchange rates and important commodity price that promote enterprises’safe-haven motivation and demands. Therefore, using derivatives hedging for effective risk management has become the urgent need of enterprise stable operation. However, due to the characteristics of financial derivatives, such as leveraged, complexity and speculative, improper use may bring huge losses to the enterprises. As a result, the enterprises have to consider the loss brought by high risk while using derivatives to gain high-yield. Under this background, how to treat derivatives objectively and fairly? Whether enterprise use derivatives or not? Whether the use of derivatives hedging brings enterprises’ performance enhancements? These kinds of questions are worthy of study and concern.This paper is based on financial derivatives, with a comprehensive review of the related literature on the theoretical analysis. Through to use theoretical analysis and empirical validation to explore the derivatives hedging effect on corporate performance. Firstly, elaborate the relevant concepts of derivatives hedging, the basic form of implementation and the theory development. Secondly,review the theory and empirical researches in pathways and influence of enterprises to use derivatives hedging. Thirdly, make a brief analysis of characteristics of hedging in listed companies, summarizes related hypothesis of derivatives hedging effects on the performance of listed companies. Fourth,collect the data of listed companies in China’s nonferrous metals and ferrous metals industries, and make an empirical analysis of the relationship between the usage of derivatives hedging in enterprises and corporate performance. The result shows that the usage of derivatives hedging generally is positively related to the corporate performance, which proves that using derivatives hedging is helpful to improve enterprise performances. Summarize research conclusions at the last part of the paper. In combination with the practical situation of China, reasonable suggestions are put forward for the derivatives market in China.