Study On The Effect Of Corporate Hedging On The Cost Of Debt

Derivatives is one of the most important tools when company hedging risk.By locking the uncertainty of the future,smoothing company’s cash flow,hedging reduces various risks that the enterprises facing. However, the complexity of the operation and leverage, making derivatives itself has some risks, which often bring huge losses. As the economic environment become more complex and the increase of debt many companies use derivatives as debt management tools to lock their debt financing costs. From this perspective, this article mainly research the effect of corporate hedging on the cost of debt.In this paper,first,I combed the correlation theories and analyzed the mechanism of hedging behaviors affect the cost of debt,The author analyzing mainly from three aspects: hedging behaviors reducing financial distress possibility, lowing agency conflicts and lightening the level of information asymmetry, then puts forward three hypotheses of hedge reducing the cost of debt. I empirical analyzed whether and how hedge behavior affect the cost of debt.Due to low proportion of listed companies in our country using derivatives, this article selects C32 and C38 as samples.Those samples are quarter panel data from 2010 to 2013. STATA is used as analyzing software. Specifically, I tested the multicollinearity between variables, with Pearson correlation matrix, and then using the mixed effect model and random effect model to analyze. In order to make the results more convincing, the author has carried on the choice between the two models, found that the random effects model is superior to the mixed effects model.Hedging has significant impact on the cost of debt,even we controlling sequence problems.By setting the cross term of hedge and financial distress,agency costs,information asymmetry,I inspected the mechanism of hedging affecting the cost of debt.Study found that companies hedging behavior reducing the cost of debt by reducing financial distress possibility,and lightening the level of information asymmetry,and the more serious the problem above the company, the more hedge returns they will enjoy at the same time. They support the hypotheses of this article. Finally considering the important role of derivatives, the author puts forward some suggestions to enterprises and regulatory agencies.