Use of Derivative and Firm Performance: Evidence from the Chinese Shenzhen Stock Exchange

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dc.citation.issue2
dc.citation.volume14
dc.contributor.authorWen Y
dc.contributor.authorKang Y
dc.contributor.authorQin Y
dc.contributor.authorKennedy J
dc.date.available19/02/2021
dc.date.issued19/02/2021
dc.description.abstractFinancial derivatives have been increasingly used by firms to hedge against financial risks. However, it is still not clear what factors at the firm level lead to firms’ derivative use and whether derivative use can generate performance improvement, especially in the context of firms operating in emerging economies. Using the unbalanced panel data consisting of 2529 listed firms from China covering an 11-year period from 2005 to 2015, this study examines these two questions regarding firms’ use of financial derivatives. Based on results from the empirical analysis, this study identified operational cash flow, tax shield, R&D investment, and the possibility of bankruptcy, as the firmlevel factors that enable firms’ decision to invest in financial derivatives. More importantly, empirical findings from this study suggest that a firm’s derivative use tends to negatively affect firm performance, rather than improve firm performance. The negative effect of derivative use on firm performance is not consistent between the two groups of the better performer and poorer performer firms. While the poorly performed firms are more likely to use financial derivatives for the purpose of performance improvement, their derivative use tends to further damage, rather than improve, performance. These research findings have theoretical and practical implications.
dc.description.confidentialFALSE
dc.edition.edition83
dc.identifier.citationJournal of Risk and Financial Management, 2021, 83, 14 (2)
dc.identifier.doi10.3390/jrfm14020083
dc.identifier.elements-id440379
dc.identifier.harvestedMassey_Dark
dc.identifier.issn1911-8066
dc.identifier.urihttps://hdl.handle.net/10179/16087
dc.publisherMDPI AG
dc.relation.isPartOfJournal of Risk and Financial Management
dc.subjectfinancial derivatives
dc.subjectfirm performance
dc.subjectprivate-owned enterprises
dc.subjectShenzhen stock exchange of China
dc.subjectstate-owned companies
dc.titleUse of Derivative and Firm Performance: Evidence from the Chinese Shenzhen Stock Exchange
dc.typeJournal article
pubs.notesNot known
pubs.organisational-group/Massey University
pubs.organisational-group/Massey University/Massey Business School
pubs.organisational-group/Massey University/Massey Business School/School of Economics and Finance
pubs.organisational-group/Massey University/Massey Business School/School of Management
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