TITLE:
Does Derivatives Use Affect Firm’s Debt Capacity? Evidence from China
AUTHORS:
Guiling Zhang, Zhaoqi Guo, Lu Cheng, Yajing Wang
KEYWORDS:
Derivatives, Debt Capacity, Information Disclosure, Ownership, China
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.13 No.1,
January
31,
2024
ABSTRACT: This paper investigates the impact of derivatives use on firms’ debt
capacity based on Chinese listed firms. It is found that derivatives usage is
significantly negatively associated with firms’ new debt, and the results
remain robust after controlling for endogeneity and replacing the measurement
of debt capacity. Further analysis indicates that derivatives mainly reduce the
ability borrow long-term debt, the negative relationship is mainly significant
in non-SOEs, and the revision of relevant accounting standards help to
ameliorate the unfavorable impact of derivatives use on debt capacity. This paper provides empirical
support for further standardizing the use and disclosure of derivatives, and
the revision and improvement of related accounting standards.