Corporate Financial Hedging And Firm Value,Evidence From Manufacturing

With the deepening of the economic opening to the outside world,advance of interest rate liberalization and reform of exchange rate formation mechanism in China,enterprises have been faced with increasingly large risks in exchange rate,interest rate,commodity and raw material prices,with increasing demand for risk management.In this context,China's enterprises,especially listed companies begin to adopt derivatives for risk management,which can help enterprises with the stable production and operation,rational allocation of economic resources,maintenance of the steady growth of financial conditions and profitability through effective hedging against fluctuations in exchange rate,interest rates and commodity prices.China is a manufacturing power and manufacturing industry plays a dominating role in the national economy.Therefore,it is of great importance to study the influence of hedging of derivative products on the value of listed companies in the manufacturing industry in order to perfect the construction of financial market and guide the listed companies to reasonably avoid risks.Based on the annual report disclosed by the listed companies,this paper manually collects a large amount of enterprise information,makes statistics and analysis on the situation of derivative products applications in companies in China,and carries out an in-depth analysis on the cases of losses in using derivative hedging.This paper,by combing the relevant theories on the influence paths of hedging on company values,holds the belief that hedging can affect the value of enterprises by influencing expected tax,financial distress costs,investments and agency conflicts.Finally,this paper takes manufacturing companies that went listed before 2007 as the object of observation,selects a total of 6046 groups of effective observations from listed manufacturing companies from 2007 to 2015,divide samples into two groups,one with the use of derivatives hedging and the other without derivatives hedging,carries out descriptive statistics and analysis,takes the derivatives used as dummy variables,selects appropriate control variables,adopts non-equilibrium panel to the whole sample,studies the influence of using derivative hedging on the value of enterprises,verifies the influencing paths and performance of derivative hedging on the value of enterprises and finds that applications of derivative hedging may have a negative effect on the value of enterprises;finally,the robustness test is carried out by selecting appropriate substitution variables and it is found that the empirical results are robust and reliable.Based on the combing of theories on the influence of applications of derivative hedging on value of enterprises,this paper mainly draws the following conclusions: First,generally the ratio of application of financial derivatives to hedging in China's manufacturing industry is relatively low;second,relevant laws,regulations and standards can only provide relatively weak supervision on the use of derivatives;third,there is a significant negative effect of the application of derivatives by China's listed manufacturing companies on the value of enterprises;fourth,application of derivatives has a better effect than without derivatives.This paper puts forward the following suggestions in combination with the analysis,combing of theory and results of empirical studies: First,establishing the mechanism of employment with certificates for the derivatives trading;second,establishing an effective regulatory mechanism to prevent turbulence in the derivatives market;third,accelerating the improvements of the derivatives market and enriching the variety of derivatives;fourth,establishing an effective,unified regulatory system;Fifth,organizing trainings on derivative trade of listed companies.