Analysis Of The Motives And Value Effect Of Corporate Derivatives Hedging

With the collapse of Bretton Woods system in1973and the release of federal deposit interest rate regulations in1986, for the enterprises of various countries, risks related to the exchange rate and interest rate fluctuate sharply, which catalyses the rapid development of derivative financial instruments. More and more enterprises in the world begin to participate in the use of financial derivatives hedging. The development of financial derivatives market in China started relatively late, that Shanghai foreign exchange swap center took the lead in the introduction of foreign currency futures, marking financial derivatives market in China officially started a pilot in1992. In the past20years, along with the global capital market gradually mature and the sharp increase in demand of risk management. For the enterprises in China, the use of financial derivatives hedging is in the rapid development. At present, the turnover of futures and options in the capital market of China rose year by year. A financial derivative is mainly used to manage risk through hedging, so hedging has become the main method of risk management. The motives and value effect of derivatives hedging for these enterprises has become a hot topic in academic research, and it also has caused the widespread thinking.At present, the research about derivatives hedging motive and value effect for foreign scholars are more mature, but in our country, the theoretical research and empirical research in this area are very limited. The theory research is mostly foreign relevant results, and they are simply summarized and discussed. Object of empirical research are mostly foreign markets, rather than China market. So for enterprises in our country, what extent about derivatives hedging? What are the motives of hedging? Does hedging can really increase the firm value? These questions provided the inspiration for this study. Foreign scholars have pointed out that the motives of financial derivatives hedging are tax saving, the cost of financial distress reducing, the cost of the lack of investment reducing, scale effect and managers’ risk averse etc.. At the same time, the theories about saving tax, reducing the cost of financial distress and reducing the investment shortage pointed out that financial derivatives hedging can increase the value of enterprises. In order to analyze whether the results of empirical research abroad on apply to the capital market in China, and if they are not applicable, analysis of its causes will be pointed. In this paper, according to the actual situation of China listing Corporations using financial derivatives hedging, based on summarizing and reviewing the related literature at home and abroad, and selecting the non-financial sector listing Corporations as the object of study with empirical research methods to test the hedging derivatives motives of listing Corporation in China and its influence on the value of the enterprises. Firstly this paper describes the background and meaning of the hedging motives and value effect, and the introduction of the main framework for research, and a review of related research achievements at home and abroad. Secondly, this paper gives an overview of the relevant theory. Furthermore, theoretical analysis of the motives and value effect on hedging is put forward. After theoretical analyzing, this paper puts forward six basic assumptions, those are assumption H1-a:the actual tax rate of enterprises is positively related to the use of derivatives hedging; assumption H1-b: the debt to asset ratio of the enterprise is positively related to the use of derivatives hedging; assumption H1-c:the growth rate of main business income is positively related to the use of derivatives hedging; assumption H1-d:the fixed assets of the enterprise is positively related to the use of derivatives hedging; assumption H1-e:the ratio of intangible assets of enterprises is positively related to the use of derivatives hedging; assumption H2:the use of corporate derivatives hedging helps to improve the enterprise value. Finally, this paper uses Logistic regression analysis and multivariate linear method to study derivatives hedging motive and value effect of listing Corporation, which is the core of this article.The main conclusions of this paper are that the use of hedging derivatives in listing Corporation in China is much less, namely, hedging has not been large-scale use; scale effect and alternative way is the main motives of derivative financial instruments hedging in the listing Corporation in our country, and the three main stream motives about saving tax, reducing the cost of financial distress and reducing the investment were not confirmed; Chinese listing Corporation use derivative financial instruments to hedge has a negative impact to the value of the enterprise. Therefore, the results of this study do not support that the use of derivatives hedging can improve the hypothesis of enterprise value. The reason causing the above results may mainly because listing Corporation in our country using hedging derivatives for a short time, and the use experience is quite short, and operation level and risk control ability are also very limited, which needs to be strengthened.