The Impact Of Derivatives Hedging On Firm Risk

Derivatives have been becoming the important financial instruments, it is indispensable risk management tools of worldwide top firms, most of which rely on derivatives to avoid risk that exposed to the business environment. Chinese Economy is an emerging market economy. After accession to the World Trade Organization, the trend of China's financial internationalization and market-oriented is growing. The development of derivatives markets has become financial industry's important issue, and the application of derivatives will be increasingly widespread for firm. Research on derivatives'risk-management has become an important project for scholar of accounting and finance academics. Under the environment of New Accounting Standard, China's derivatives accounting about recognition, measurement and information disclosure makes study with regard to derivatives urgent.Reviewing and summing up domestic and foreign documents, the paper closely relates to the practice of China financial market, then analyzes the impact of derivatives on corporate risk, which mainly including an increase in business risk and a reduction on business risk. But the paper has placed an emphasis on our hedging derivatives to avoid the corporate risk in the business environment that can not be managed by the traditional risk management-systemic risks after the implementation of New Accounting Standard. Since the new standards is implemented from January 1,2007.This article mainly selected 37 manufacturing companies that use derivatives from 2007 to 2008 as samples in China's stock market. Adopting software Excel and Eviews6.0, constructs a multiple linear regression model based on the research of traditional influences of firm risk, and has regression analysis and further discussion.The main innovation in the paper is:the innovation of content and conclusion. Previous study is focused on the relationship between motivation and corporate value and mainly based on theoretical analysis. But we study that whether the impact of derivatives hedging correspond to foreigners and the facts. Then we conclude that China's manufacturing listed companies'derivatives hedging can reduce the risk in our capital market from the paper's perspective, although some of their derivatives hedging are failure. The uniqueness of data:after studying the economic consequences of new accounting standards about derivatives, empirical test the information sheet about derivatives of China's listed companies do affect enterprise risks.The overall conclusions of the paper are:first, the size of derivatives are significantly negative correlate to corporate risk in our sample of companies, moreover companies using more derivatives significantly reduce the risk, so the use of derivatives is conducive to hedge. This also indicates that the majority of our enterprises using derivatives to hedge are valid. Secondly, the efficiency of derivatives is not significantly related to corporate risk. Since China's accounting rules that hedge changes of cash flow hedge is included in the changes of pair value assets. Most of the hedging gains and losses are included in owner's equity. And in our manual data collection process, some companies do not have a clear description in the fair value of hedging and the speculative part that make some datum inaccurate enough. But in the future study, we wish to improve. Third, the new user of derivatives can much more significantly reduce the systemic risk, and the larger of the derivatives the greater degree of risk reduction. In conclusion, that indicate most new users of derivatives mainly hedge and achieve their purpose in the Chinese market.