A Study On The Motivation Of Commodity Futures Hedging Of China's Listed Companies

The commodity future is an effective instrument for manufaturers to manage price volatility risk.However,commodity hedging is still preliminary in Chinese enterprises' risk management and the hedge ratio is too small comparing to their business scale.And business diversification is more prevalent in risk management practice.The writer differentiates companies' futures trading activities into three classes-Hedge,Speculate True,which means speculating based on correct anticipation of futures price,and Speculate False,which means speculating by misjudgment and causing unnecessary loss,and classifies business diversification into three categories: Horizon,Vertical and Unrelated Diversification.This paper mainly study the factors inlfluncing enterprises' choices between hedging and diversification and the effects of hedging and diversification on company operating performance and risk management in short-and longterm.This study is based on a database of China's A-share listed companies who disclose futures dealing and operation information in their annual report,crossing the period 2007-2015.Firstly,using double sample's T-test,Wilcoxon test and Multinomial Logistic Model,the study finds that company with higher shareholding concentration,bigger size or state-owed company is more likely to participate in hedging and diversification.Higher growth enterprise tends to make hedging deal.But the intentions for decreasing expected tax burden,avoiding financial distress and risk aversion of management are not supported.Then,combining with mean test,statistic analysis and panel data regress,empirical analysis shows that hedging has little negative effet on operation performance while speculating leaves severe negative influence.And hedging could lower enterprises' total risk and stabilize operate profits significantly in shortand long-term.Diversification is difficult to improve operating performance and decrease risk in short-term while synergy benefits in horizon and vertical business could promote financial performace gradually in long-term.Unfortunately,unrelated diversification may lower business performance and increase risk in short-term.Nevertheless,horizon diversification also can lower the risk level and margin volatility in long run when vertical and unrelated diversification secured stable operating cash at the same time.Finally,this paper proposes some reasonable risk management advices for manufaturers base on the risk management target and feasibility.Besides,the writer also puts forward some suggestions towards regulators to encourage companies to use futures hedging in risk management,decreasing trading fees,inhibit falsely speculating motives and unrelated diversification through merge & accquisition.