The Financial Effect Of Chinese Listed Companies’ Use Of Derivatives

Since the 1970s, the collapse of the global fixed exchange rate system and violent changes of the global commodity prices, interest rate and exchange rate make the enterprises produce the safe-haven motive and demand. In the progress of science and technology, less regulation of the financial markets, derivatives such as futures, options, swaps, have a rapid development. Along with the development of global economic integration, Chinese companies’concern about derivatives usage in risk management is also growing.2008 financial crisis sparked the debate of derivatives usage. Financial crises have brought valuable lessons for the initial phase of derivatives markets in our country, which make us think deeply about the future of our country derivatives market development and regulatory policy. In this background, the paper tries to do the empirical research about the financial effect of the listed companies’the use of derivatives. Firstly, theories and empirical studies about enterprises’use of derivatives are reviewed. Secondly, the financial effect produced by the use of derivatives is discussed. Thirdly, using the panel data of annual reports from 2007 to 2010 of listed companies in metal and non-metal industry from Shanghai and Shenzhen Stock Exchange as samples, through regression analysis model by statistics software SPSS, the paper makes an empirical research about the financial effect produced by the use of derivatives. The empirical results show that:(1) The number of listed companies in metal and non-metal industry which use derivatives for risk management is small and hedge scale is not big. (2) Listed companies’ use of derivatives for risk management will affect the asset liability ratio: the companies that use derivatives have higher debt level; the larger the scale of the use of derivatives, the higher the debt level. (3) Listed companies’use of derivatives for risk management will affect the dividend policy:the companies that use derivatives distribute more dividends; the larger the scale of the use of derivatives, the more distribution of dividends. Finally, the paper summarizes the findings and puts forward the direction of the future research.This paper has made a contribution to the existing literature in the following aspects. (1) The different research perspective. The paper studies the financial effect produced by the use of derivatives from the perspective of using derivatives to conduct risk management. In our country, researches about enterprises’financial effect focused on financing structure, Assets reorganization, Share repurchase, etc. At present our country’s derivative market is not mature and relevant accounting system that has just issued also needs to be improved. Domestic literatures lack researches about the financial effect produced by the use of derivatives. (2) The extention of the research object. In China, only Chen Wei and Shen Qun made an empirical research by using 111 observable sample of domestic listed company from non-ferrous metal processing or manufacturing industry in 2003,2004 and 2005. Their research focused on the commodity futures, and using only a virtual variable, namely whether to use futures, and didn’t explain what the quantity of derivatives used do to enterprises’finance. This paper uses the data of the listed companies from the metal non-metal industry in 2007-2010, covering the commodity futures, exchange rate derivatives and interest rate derivatives. In addition, this paper takes the scale of derivatives used into the model to study the financial effect.