Does the Derivatives Usage Affect Corporate Capital Expenditure? Evidence from China

Abstract

Based on hand-collected data of financial derivatives in listed firms of China, this paper discusses the impact of derivative usage on capital expenditures in emerging markets. It is found that the capital expenditure of derivative users is lower than non-users, and the mechanism is that derivative usage reduces the company's borrowing capacity. The results remain robust after the test of sensitivity test and control of endogeneity. Further research shows that the higher derivative usage intensity, the lower the capital expenditure; The implementation of accounting standards such as Fair Value Measurement has mitigated the adverse impact of derivative usage on capital expenditures; The effect of using derivative to reduce capital expenditures mainly occurs in non-SOEs. From the perspective of economic consequences, the corporate value of derivative users is lower, and the change of derivative accounting standards helps to alleviate the adverse impact of derivatives on corporate value.

Does Derivatives Use Affect Firm’s Debt Capacity? Evidence from China

“…In 2006, with the implementation of the China Accounting Standards, derivatives were included in the financial statements for the first time, which made large sample research on derivatives possible in Chinese listed firms. In order to exclude the impact of the financial crisis and the revision of the new round of Chinese accounting standards in 2017, following Zhang et al (2023), we take A-share listed companies from 2010-2016 as the initial sample. Since derivatives use is mainly used to hedge the risk of exchange rate, interest rate, and commodity price fluctuations, drawing on Makar & Huffman (2001), Purnanandam Journal of Financial Risk Management (2008), we remove firms without risk exposure during the sample period.…”