IDEAS home Printed from https://ideas.repec.org/a/aif/report/v2y2020i1p78-96.html
   My bibliography  Save this article

Impact of Foreign Currency Derivatives on Value of Chinese Non-financial firms

Author

Listed:
  • Md Kamal Hossain

    (University of International Business and Economics (UIBE), China.)

  • Mammadova Gulay

    (University of International Business and Economics (UIBE), China.)

Abstract

Newly reformed global economy has the widespread of using foreign exchange derivatives as a risk management tool. Recent trends lead Chinese firms into high financial risk, thus inevitable choice for Chinese companies are using derivative for mitigate risks arising from fluctuations. Purpose of this research is to investigate foreign exchange derivatives effect on value for Chinese companies, 36 non-financial company’s data are used as sample and time frame will be 2013-2017. After controlling for several fundamental firm specifications, this study has shown that there is a positive and significant relationship with a simple decision for using foreign currency derivatives and firm value. Furthermore, result shows using foreign exchange derivatives significantly add value of the firms as higher Tobin’s Q ratio. This finding indicates that especially companies with high firm value can further expand their values through actively participating in hedging activities. Results also indicate that foreign exchange derivatives are more likely to raise large corporation’s value. Another finding is that effect of value-enhancing on degree of derivative use of foreign exchange is weaker for profitable firms than for less profitable ones. This means that increasing derivative holdings by more profitable non-financial firms are unlikely to contribute to their performance.

Suggested Citation

  • Md Kamal Hossain & Mammadova Gulay, 2020. "Impact of Foreign Currency Derivatives on Value of Chinese Non-financial firms," Journal of Scientific Reports, IJSAB International, vol. 2(1), pages 78-96.
    • Handle: RePEc:aif:report:v:2:y:2020:i:1:p:78-96
    as

    Download full text from publisher

    File URL: https://ijsab.com/wp-content/uploads/1012.pdf
    Download Restriction: no
    File URL: https://ijsab.com/jsr-volume-2-issue-1/3026
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pramborg, Bengt, 2004. "Derivatives hedging, geographical diversification, and firm market value," Journal of Multinational Financial Management, Elsevier, vol. 14(2), pages 117-133, April.
    2. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    3. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. "On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-284, March.
    4. Yusuf Ayturk & Ali Osman Gurbuz & Serhat Yanik, 2016. "Corporate derivatives use and firm value: Evidence from Turkey," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(2), pages 108-120, June.
    5. Allayannis, George & Weston, James P, 2001. "The Use of Foreign Currency Derivatives and Firm Market Value," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 243-276.
    6. I Wayan Nuka Lantara, 2012. "The Use of Derivatives as a Risk Management Instrument: Evidence from Indonesian Non-Financial Firms," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 45-62, June.
    7. repec:dau:papers:123456789/11689 is not listed on IDEAS
    8. Francisco Pérez-González & Hayong Yun, 2013. "Risk Management and Firm Value: Evidence from Weather Derivatives," Journal of Finance, American Finance Association, vol. 68(5), pages 2143-2176, October.
    9. Allayannis, George & Lel, Ugur & Miller, Darius P., 2012. "The use of foreign currency derivatives, corporate governance, and firm value around the world," Journal of International Economics, Elsevier, vol. 87(1), pages 65-79.
    10. Luo, Hang (Robin) & Wang, Rui, 2018. "Foreign currency risk hedging and firm value in China," Journal of Multinational Financial Management, Elsevier, vol. 47, pages 129-143.
    11. Tor Brunzell & Mats Hansson & Eva Liljeblom, 2011. "The use of derivatives in Nordic firms," The European Journal of Finance, Taylor & Francis Journals, vol. 17(5-6), pages 355-376.
    12. Bartov, Eli & Bodnar, Gordon M, 1994. "Firm Valuation, Earnings Expectations, and the Exchange-Rate Exposure Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1755-1785, December.
    13. Argyro Panaretou, 2014. "Corporate risk management and firm value: evidence from the UK market," The European Journal of Finance, Taylor & Francis Journals, vol. 20(12), pages 1161-1186, December.
    14. Yanbo Jin & Philippe Jorion, 2006. "Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 61(2), pages 893-919, April.
    15. Belghitar, Yacine & Clark, Ephraim & Mefteh, Salma, 2013. "Foreign currency derivative use and shareholder value," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 283-293.
    16. Lel, Ugur, 2012. "Currency hedging and corporate governance: A cross-country analysis," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 221-237.
    17. Hoa Nguyen & Robert Faff, 2002. "On The Determinants of Derivative Usage by Australian Companies," Australian Journal of Management, Australian School of Business, vol. 27(1), pages 1-24, June.
    18. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gamze Ozturk Danisman & Pelin Demirel, 2019. "Corporate risk management practices and firm value in an emerging market: a mixed methods approach," Risk Management, Palgrave Macmillan, vol. 21(1), pages 19-47, March.
    2. Jyoti Prakash Das & Shailendra Kumar, 2023. "Impact of corporate hedging practices on firm's value: An empirical evidence from Indian MNCs," Risk Management, Palgrave Macmillan, vol. 25(2), pages 1-35, June.
    3. Bessler, Wolfgang & Conlon, Thomas & Huan, Xing, 2019. "Does corporate hedging enhance shareholder value? A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 222-232.
    4. Kim, Huong Trang & Papanastassiou, Marina & Nguyen, Quang, 2017. "Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 39-59.
    5. Jerome Geyer-Klingeberg & Markus Hang & Andreas W. Rathgeber & Stefan Stöckl & Matthias Walter, 2018. "What do we really know about corporate hedging? A meta-analytical study," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 1-31, February.
    6. Ullah, Subhan & Irfan, Muhammad & Kim, Ja Ryong & Ullah, Farid, 2023. "Capital expenditures, corporate hedging and firm value," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 360-366.
    7. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    8. Hadian, Azadeh & Adaoglu, Cahit, 2020. "The effects of financial and operational hedging on company value: The case of Malaysian multinationals," Journal of Asian Economics, Elsevier, vol. 70(C).
    9. Franziska Wolf & Terry Boulter & Sukanto Bhattacharya, 2017. "Derivative Practices in Australian and Canadian Industries," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-39, December.
    10. Mariana Vila Nova & António Melo Cerqueira & Elísio Brandão, 2015. "Hedging with Derivatives and Firm Value," FEP Working Papers 568, Universidade do Porto, Faculdade de Economia do Porto.
    11. Markus Hang & Jerome Geyer-Klingeberg & Andreas W. Rathgeber & Clémence Alasseur & Lena Wichmann, 2021. "Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 789-818, February.
    12. Chowdhury, Rajib & Doukas, John A. & Mandal, Sonik, 2023. "CEO risk preferences, hedging intensity, and firm value," Journal of International Money and Finance, Elsevier, vol. 130(C).
    13. Yao HongXing & Hafiz Muhammad Naveed & Bilal Ahmed Memon & Shoaib Ali & Muhammad Haris & Muhammad Akhtar & Muhammad Mohsin, 2024. "Connectedness between Currency Risk Hedging and Firm Value: A Deep Neural Network-based Evaluation," Computational Economics, Springer;Society for Computational Economics, vol. 63(2), pages 599-638, February.
    14. Affaf Asghar Butt & Main Sajid Nazir & Hamera Arshad & Aamer Shahzad, 2018. "Corporate Derivatives and Ownership Concentration: Empirical Evidence of Non-Financial Firms Listed on Pakistan Stock Exchange," JRFM, MDPI, vol. 11(3), pages 1-15, June.
    15. Merkel, Matthias F., 2018. "Foreign exchange derivative use and firm value: Evidence from German non-financial firms," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-33-18, University of Passau, Faculty of Business and Economics.
    16. Jiaqi Jiang & Yun Feng, 2021. "The interaction of risk management tools: Financial hedging, corporate diversification and liquidity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2396-2413, April.
    17. Markus Hang & Jerome Geyer‐Klingeberg & Andreas W. Rathgeber & Stefan Stöckl, 2021. "Rather complements than substitutes: Firm value effects of capital structure and financial hedging decisions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4895-4917, October.
    18. Campbell, John L. & Mauler, Landon M. & Pierce, Spencer R., 2019. "A review of derivatives research in accounting and suggestions for future work," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 44-60.
    19. Alexandridis, George & Chen, Zhong & Zeng, Yeqin, 2021. "Financial hedging and corporate investment," Journal of Corporate Finance, Elsevier, vol. 67(C).
    20. McCarthy, Scott & Oliver, Barry & Song, Sizhe, 2017. "Corporate social responsibility and CEO confidence," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 280-291.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aif:report:v:2:y:2020:i:1:p:78-96. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Farjana Rahman (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.