Abstract: Financial derivatives are highly leveraged. Once state-owned enterprises fail in their investments, they will have serious negative impacts on the security of state-owned assets and the security of national economy. Taking the Announcement of Audit Findings on the financial revenues and expenditures of central enterprises issued by the National Audit Office from 2010 to 2018 for a quasi-natural experiment, this paper investigate the impacts of national audit involvement on the financial derivatives investment by the state-owned listed companies affiliated to the central enterprises with the multi-phase DID model. The findings show that national audit has inhibited the speculative trading and OTC trading of financial derivatives of SOEs, and that this effect is mainly found in companies with poor internal quality control and imperfect risk information disclosure. The result of a mechanism test shows that the national audit can restrain the risky speculative trading and OTC trading through promoting rectification and implementation. It is found through further analysis that the national audit can play a positive role in promoting the floor hedging transactions, which means that the national audit does not frustrate SOEs’ normal hedging demands.

Key words: national audit, SOE, financial derivatives speculation, hedging