The Effects Of Foreign Exchange Risk Hedging On Firm Value Of State-owned MNCs

The exchange rate reflects the purchasing power of national currency;it is more of a political game between countries.With the development of international financial and trade activities,the dispute of interests between nations is inevitable.Thailand was the first nation to depreciate the currency in the Southeast Asian financial crisis of 1997.In order to protect their own profits,then other countries also took measures to devalue their currencies.The United States known for its long-term economic stability has been forced to adopt quantitative easing policies to alleviate the financial pressure of credit in the subprime crisis of 2008.The move also led to the expectation of the appreciation of RMB exchange rate to heat up.Since the reform of exchange rate system in 2005,China’s RMB exchange rate has been appreciating before it began to realize the bilateral fluctuation at2015.The fluctuation of exchange rate does not have rules just like the interest rate.It was affected more serious by the changes of political and economic environment at home and abroad.Therefore,in an attempt to reduce the risk of exchange rate risks to enterprises and countries,the solution in which to correctly understand,evaluate and avoid the risk of exchange rate has become a hot issue in the study of exchange rate risk in the international community.This paper takes the state-owned multinational listing Corporation as the research object,and mainly from the perspective of foreign exchange derivatives hedging foreign exchange risk to analysis the impact of foreign exchange risk hedging on firm value.The significance of this study is to provide theoretical basis for the usage of foreign exchange derivatives to avoid exchange rate risk,and to supply practical operational strategies for the foreign exchange risk management of Chinese listed state-owned enterprises,wish to promote the sound and healthy development of China’s foreign exchange market.This paper mainly includes three parts as follows.First,the theoretical foundation and research status.On the one hand,this paper uses the classical M&M theorem to explain the theory of company value from its assumptions and main contents.The other hand is to use the literature research method which is used to sort out the literature from the aspects of variables measurement,the factors of the influence on firm value,and the application of foreign exchange derivatives,so that wecan grasp the current research situation.Second,the current situation of foreign exchange risk hedging of state-owned MNCs.In the first place,the current situation of RMB exchange rate and the development of foreign exchange market in China are analyzed.The study suggest that the exchange rate of RMB exchange reform since 2005 experienced three major phases,they are a rapid rise period,relatively stable period and adjustment period.And the appreciation of RMB is expected strong.Second,from the analysis,the external environment of enterprises,firm needs and participants in the foreign exchange market,which turned out that strict controlling,the development of derivatives market lagging and enterprise insufficient demand are the most prominent problems.Finally,according the analysis of the relevant survey data,the insufficient strategy execution force of the foreign exchange risk management of the state-owned MNCs,the lack of cognition and talent are the internal factors of management of the foreign exchange derivatives.Thirdly,the construction of the value impact model of foreign exchange risk hedging on state-owned multinational listing Corporation.This paper was based on a careful analysis the impact of the current situation of foreign exchange risk hedging to the company’s value and the current situation of the development of foreign exchange derivatives,and deeply considering the availability of data of the M&M theorem.From the perspective of foreign exchange derivatives,we choose the six influential factors which are capital scale,profitability,dividend policy,debt paying ability,corporate governance environment and whether the state-owned enterprises in the narrow sense to as research variables that affecting the value of the company.And the value impact model of foreign exchange risk hedging on state-owned multinational listing Corporation was constructed.Fourth,An Empirical Research on the impact of foreign exchange risk hedging on the value of state owned multinational listing Corporation.I researched the effects of foreign exchange risk hedging on firm value based on a sample of 959 state-owned MNCs from2009 to 2013 with unbalanced panel.The results of this study showing that the use of foreign exchange risk hedging has a significant negative effect on the value of the state-owned listing Corporation.This is definitely contrary to the views of previous study which proposed “the use of foreign exchange risk hedging to bring the company’s value at least 10% of the premium in real economic environment”Fifth,the research conclusion and suggestion on the foreign exchange risk hedging of the MNCs.In this paper,the empirical results are explained from three aspects of the institutional background,investors’ psychological and behavioral financial theory,andput forward a proposal for some aspects which are external environment and internal governance of the MNCs,the execution of strategy and the use of foreign exchange derivatives,etc.