Research On The Mechanism Of The Usage Of Derivatives To Earnings Volatility

With the prosperity and development of derivatives market,the listed companies in Shanghai and Shenzhen stock markets use derivatives more and more frequently,and the scale of derivatives is increasing continuously.Derivatives have rapidly become an important risk management tool for listed companies in China.Most listed companies use derivatives for the purpose of hedging,that is,trading in the spot market and futures market in the opposite direction,to reduce earnings volatility by smoothing cash flow.However,a series of derivatives speculation incidents,such as Hualian Sanxin,airlines and CITIC Taifu,have led to disputes about the role and nature of derivatives among Chinese scholars.The research on the economic consequences of derivatives has attracted much attention from both theoretical and practical circles.The existing research has not explored the economic consequences of the usage of derivatives,which is an important decision-making behavior of listed companies in the capital market,and the mechanism of the usage of derivatives on earnings volatility in the context of China's special capital market.This paper studies the relationship between the usage of derivatives and earnings volatility of listed companies.Firstly,this paper manually collects the usage of derivatives of Listed Companies in China from 2010 to 2017.In order to overcome sample selectivity bias,this paper uses Propensity Score Matching(PSM)to screen samples.Secondly,the relationship between the usage of derivatives and earnings volatility is discussed in depth.That is to say,the intermediary effect theory is used to test the mechanism of derivatives on earnings volatility,the Logit model is used to test the types and economic complexity of derivatives on earnings volatility,and the moderating effect of property right nature and internal control on the relationship between the usage of derivatives and earnings volatility.Finally,based on the results of empirical tests,the paper puts forward relevant suggestions from three levels: government,market and company.The results show that:(1)derivatives significantly reduce the earnings volatility of listed companies;(2)derivatives mainly affect earnings volatility through manipulatable accruals,i.e.companies use derivatives to manage part of earnings;(3)compared with futures derivatives,listed companies using non-futures derivatives have less earnings volatility;(4)the more complex the economic content of derivatives is,the smaller the earnings volatility of listed companies is;(5)compared with the state-owned listed companies,the earnings volatility of non-state-owned listed companies using derivatives is smaller;(6)Compared with the listed companies with stronger internal control,the listed companies with weaker internal control use derivatives,the earnings volatility is smaller.