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<p>This paper investigates the effect of financial derivatives usage on stock price crash risk within the context of the Chinese emerging market. We develop two competing hypotheses: the risk-increasing hypothesis and the risk-reducing hypothesis. Using a sample of Chinese listed firms from 2009 to 2024, we find robust evidence supporting the risk-reducing hypothesis: firms with financial derivatives usage exhibit significantly lower stock price crash risk. Mechanism analyses reveal that derivatives usage mitigates crash risk through three channels: reducing cash flow volatility, inhibiting managerial self-interested behavior, and improving information disclosure quality. Cross-sectional analyses indicate that this risk-reducing effect is less pronounced in state-owned enterprises (SOEs), firms with high-ability managers, CEOs with financial backgrounds, and firms located in regions with higher levels of marketization. This study contributes to the literature on financial derivatives usage and stock price crash risk, providing critical insights for regulators and investors to assess firms’ financial derivatives usage and manage financial risks in emerging markets.</p>

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Financial derivatives usage and stock price crash risk: evidence from the Chinese emerging market

  • 期刊论文

  • 发表日期：

    2026年4月27日

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  • Miaomiao Zhang,
  • Kun Su,
  • Chengyun Liu,
  • Senliulu Fu

摘要

This paper investigates the effect of financial derivatives usage on stock price crash risk within the context of the Chinese emerging market. We develop two competing hypotheses: the risk-increasing hypothesis and the risk-reducing hypothesis. Using a sample of Chinese listed firms from 2009 to 2024, we find robust evidence supporting the risk-reducing hypothesis: firms with financial derivatives usage exhibit significantly lower stock price crash risk. Mechanism analyses reveal that derivatives usage mitigates crash risk through three channels: reducing cash flow volatility, inhibiting managerial self-interested behavior, and improving information disclosure quality. Cross-sectional analyses indicate that this risk-reducing effect is less pronounced in state-owned enterprises (SOEs), firms with high-ability managers, CEOs with financial backgrounds, and firms located in regions with higher levels of marketization. This study contributes to the literature on financial derivatives usage and stock price crash risk, providing critical insights for regulators and investors to assess firms’ financial derivatives usage and manage financial risks in emerging markets.