Research on Determinants of Risk Management Policies in China

Western risk management theory suggests that corporate risk management is due to tax convexity, financial distress costs, underinvenstment problem, and managerial risk aversion etc. This paper provides evidence on the determinants of corporate risk management policies through hedging. Data on hedging are obtained from 2007 annual reports for a sample of 1151 China non financial listed firms. Our evidence does show that hedging is related to reduce expected financial distress costs, reduce underinvestment problems and managerial risk aversion. Our results also indicate that firms hedging because of firm size. However, we find no evidence that firms hedging in response to tax convexity.