We test if managerial preferences explain how firms hedge using hand-collected data on derivative portfolios in the oil and gas industry. How firms hedge involves choosing between linear contracts and put options, and deciding whether to finance these hedging positions with cash-on-hand or by selling call options. The likelihood of being a hedger increases with CEO age, and near-retirement CEOs prefer linear hedging instruments. The predictions of the managerial risk incentives-theory of hedging strategy, according to which managers with convex compensation schemes would avoid hedging strategies that cap upside potential, find no support in the data.

Croci, E., Del Giudice, A., Jakensgard, H., CEO Age, Risk Incentives, and Hedging Strategy, <<FINANCIAL MANAGEMENT>>, 2017; 46 (3): 686-716. [doi:10.1111/fima.12166] [http://hdl.handle.net/10807/88689]

CEO Age, Risk Incentives, and Hedging Strategy

Croci, Ettore
Primo
;
Del Giudice, Alfonso
Secondo
;
2017

Abstract

We test if managerial preferences explain how firms hedge using hand-collected data on derivative portfolios in the oil and gas industry. How firms hedge involves choosing between linear contracts and put options, and deciding whether to finance these hedging positions with cash-on-hand or by selling call options. The likelihood of being a hedger increases with CEO age, and near-retirement CEOs prefer linear hedging instruments. The predictions of the managerial risk incentives-theory of hedging strategy, according to which managers with convex compensation schemes would avoid hedging strategies that cap upside potential, find no support in the data.
Inglese
Croci, E., Del Giudice, A., Jakensgard, H., CEO Age, Risk Incentives, and Hedging Strategy, <<FINANCIAL MANAGEMENT>>, 2017; 46 (3): 686-716. [doi:10.1111/fima.12166] [http://hdl.handle.net/10807/88689]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/88689
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