Factors affecting Chinese enterprises' hedging decision making

Abstract

Purpose

The purpose of this paper is to find factors that explain why some enterprises hedge but others do not. The authors' analysis relies on Heckman model (a probit and Tobit model) with the data obtained from questionnaires collected from Chinese enterprises. Given the fact that only a small portion of Chinese agribusinesses hedge, this paper provides some initial academic evidence to help the agricultural sector devise useful programs to assist participations of hedging.

Design/methodology/approach

A Heckman selection model was developed to analyze questionnaire information obtained using face‐to‐face interviews with 218 Chinese agribusinesses. This paper presents summary statistics, Heckman estimation results, and interpretations of the results.

Findings

Survey results show that a majority of surveyed firms believe that futures market cannot reduce risks or increase income. According to the study, factors affecting enterprises hedging decisions include: to what degree that Chinese enterprises believe hedging leads to business stability; whether these enterprises had attended a hedge training or seminar; perceived price volatility in the market; and have alternative strategies to reduce price risks.

Practical implications

Agribusiness assistance programs can use this paper's findings to plan effective hedge training to help improve participation of futures hedging.

Originality/value

This study analyzes Chinese agribusiness firms' hedging behaviour, using a new set of questionnaire data collected from main agribusinesses. Chinese agribusiness firms' hedging behavior has not been fully examined. This study fills this gap.

Citation

Zheng, S., Xu, P. and Wang, Z. (2011), "Factors affecting Chinese enterprises' hedging decision making", China Agricultural Economic Review, Vol. 3 No. 4, pp. 476-488. https://doi.org/10.1108/17561371111192338