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

Md Kamal Hossain and Mammadova Gulay
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Md Kamal Hossain: University of International Business and Economics (UIBE), China.
Mammadova Gulay: University of International Business and Economics (UIBE), China.

Journal of Scientific Reports, 2020, vol. 2, issue 1, 78-96

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.

Keywords: Chinese Non-financial firms; foreign exchange derivatives; risk management; firm value (search for similar items in EconPapers)
Date: 2020
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