Abstract:
Against the backdrop of significant commodity price volatility in recent years, it is of great theoretical and practical importance to thoroughly analyze and clarify how commodity derivatives function as a risk management tool to enhance supply chain security carries significant theoretical and practical implications. Using a sample of A-share listed companies in the Shanghai and Shenzhen stock exchanges and drawing on an "upstream supplier–firm–downstream customer" dataset, this study finds that firms' use of commodity derivatives enhances supply chain stability, as evidenced by an overall increase in the proportion of procurement from stable suppliers and the proportion of sales to stable customers. This effect operates through two mechanisms: first, commodity derivatives usage reduces firms' operating risk and conveys a positive signal of enhanced contract fulfillment capability to the market, thereby encouraging upstream and downstream firms to establish long-term, stable cooperative relationships; second, it improves the efficiency of capital utilization and the precision of supply-demand matching in production, accelerating the turnover of the entire procurement-production-sales cycle, which allows firms to become more deeply embedded in supply chain trading networks and strengthens collaborative relationships among firms within the supply chain. Further tests show that the stabilizing effect of commodity derivatives on supply chains is more pronounced among non-state-owned enterprises, manufacturing firms, and following the strengthening of information disclosure regulations for commodity futures hedging activities. Hedging price risks on the raw material (finished product) side enhances supplier (customer) stability, and hedging risks on both sides simultaneously yields superior supply chain stabilization effects compared to unilateral hedging. The examination of economic consequences reveals that, by enhancing supply chain stability, commodity derivative instruments, on the one hand, promote firms' increased investment in specific assets, particularly specific tangible assets, and on the other hand, ultimately improve firms' financial performance, as reflected in indicators such as return on total assets and comprehensive return on total assets. This paper extends research on the determinants of supply chain stability from a financial risk management perspective and provides practical implications for firms seeking to utilize commodity derivatives to manage price risk and enhance supply chain resilience.
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