Impacts of Derivatives on Firms’ Value Empirical Results from Chinese Companies
There is no common understanding for the realm of theory and practice to understand correctly whether financial derivatives are used effectively in China today and how the derivatives influence firm value. This paper sorts out literatures of related derivatives and company value, takes 119 listed resource-type companies as the research samples with the data of 2007-2010, and tests empirically the impacts of derivatives upon the firm value. The research results show that the application of derivatives improves the company’s Tobin’s Q, but has negative effect on ROA and is not significant to EPS and cash flow. This means that though the use of derivatives produces negative effect to the profit margin, but at the same time it is conducive for the company to enhance its value, illustrating the use of derivatives is generally effective. This conclusion provides valuable reference for the derivatives of the decision and management of enterprises, investors and creditors, and is also beneficial to supervision of government and to make related policy.
Keywordsderivative instruments hedging firm value corporate performance
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