Currency Hedging and Firm Value

The data is taken from the Shenzhen stock exchange, one of the two main markets in China. As there have been increasing foreign exchange risks for Chinese firms in recent times following the liberalisation of the foreign exchange markets, firms have become more likely to use foreign currency derivatives, especially in the manufacturing industry, which are more likely to import and export goods, so require access to the foreign exchange markets. Thus, we have chosen listed firms from the manufacturing industry, classified by the CSRC (China Securities Regulatory Commission), and collected data related to forward contracts, swaps and futures whose underlying asset is foreign currency from each of the company’s annual reports. We consider only multinational corporations (MNCs), which is consistent with our focus on the use of foreign currency derivatives and an empirical strategy in line with Allayannis and Ofek (2001) and Pantzalis, Simkins and Laux (2001). MNCs have been selected by choosing firms with a ratio of foreign sales to total sales which is greater than 10%. After excluding the firms with incomplete information and firms with extremely limited data, there were 316 firms’ data running from 2012 to 2017. We begin in 2012 as this is after the main liberalisations of the Chinese financial markets. All the accounting data has been obtained from the Wind database while the use of derivatives has been collected by hand from the annual reports of each firm for each year.