Factors Influencing the Use of Financial Derivatives in Chinese Listed Companies

Authors

  • Ao Yang Graduate School of Management, Management and Science University, Shah Alam, Selangor, Malaysia, and School of Economics and Trade, Henan University of Technology, Zhengzhou, China.
  • Wenqi Li School of Economics and Trade, Henan University of Technology, Zhengzhou, China.
  • Brian Sheng Xian Teo Graduate School of Management, Management and Science University, Shah Alam, Selangor, Malaysia.
  • Jaizah Othman Faculty of Business Management and Professional Studies, Management and Science University, Shah Alam, Selangor, Malaysia.

DOI:

https://doi.org/10.33094/ijaefa.v15i1.716

Keywords:

Chinese listed companies, Enterprise value, Financial derivatives, Hedging.

Abstract

This paper uses A-share chemical companies from 2011 to 2019 to examine the probit model’s ability to provide insight on why China's listed companies choose to use financial derivatives. The empirical results show that reducing the cost of financial distress, avoiding underinvestment and increasing firm size are positive determinants of listed companies' use of financial derivatives. However, the empirical results of this paper are also different from the results of international studies. The reduction of expected taxes, substitution factors and agency problems are not the determinants of listed companies' use of financial derivatives. Few listed Chinese companies use derivatives for hedging which may be the cause of the deviation problem. Further analysis shows that managers' interests are not the motivation for listed companies to use derivatives. Thus, it can be seen that the primary goal of Chinese listed companies using derivatives is to avoid hedging risks. This paper helps to predict the possibility that listed companies make hedging decisions depending on the relevant factors and provides policy guidance for the government to implement a modern development strategy for the derivatives market.

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Published

22-11-2022

How to Cite

Yang, A. ., Li, W. ., Teo, B. S. X. ., & Othman, J. . (2022). Factors Influencing the Use of Financial Derivatives in Chinese Listed Companies . International Journal of Applied Economics, Finance and Accounting, 15(1), 1–9. https://doi.org/10.33094/ijaefa.v15i1.716