Financial market development and corporate risk management: Evidence from Shanghai crude oil futures launched in China

This paper investigates the impact of China's crude oil futures (COF) on risk management at the firm level in China. The empirical results based on a sample from 2014 to 2021 show that the launch of China's COF significantly reduces idiosyncratic risk in energy-dependent firms, and this conclusion remains significant even after a series of robustness tests. Mechanism analysis reveals that the launch of China's COF reduces firms' idiosyncratic risk mainly through the cash flow and volatility within the corporate internal channels and the attention from external market information channels. Further analysis finds that the inhibitory effect is more pronounced among large firms and firms with higher competitive pressures. Our study contributes firm-level evidence on the relationship between China's COF and corporate risk management and provides insights into energy policy.