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

Financial 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 firms’ derivative use and whether can generate performance improvement, especially in context of operating emerging economies. Using unbalanced panel data consisting 2529 listed from China covering an 11-year period 2005 2015, this study examines these two questions regarding derivatives. Based on results empirical analysis, identified operational cash flow, tax shield, R&D investment, possibility bankruptcy, as firm-level that enable decision invest More importantly, findings suggest a firm’s tends negatively affect performance, rather than improve performance. The negative effect consistent between groups better performer poorer firms. While poorly performed are more likely for purpose their further damage, improve, These research theoretical practical implications.