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CEO age, risk incentives, and hedging instrument choice

Croci, Ettore and Jankensgård, Håkan LU (2014) In Knut Wicksell Working Paper Series, Lund University 3.
Abstract
We analyze how firms hedge in the oil and gas industry. Our main finding is that CEO age determines hedging behavior. The probability of being a hedger as well as the use of linear hedging strategies decreases with CEO age. These results are consistent with an argument that financial distress, which sends a negative signal of managerial ability, is relatively more costly to younger CEOs. We also investigate the vega-theory of hedging instrument choice, finding some support for a negative relationship between vega and a) the use of derivatives and b) hedging strategies that include the sale of call options.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
risk management, derivative, hedging instrument, vega, CEO age
in
Knut Wicksell Working Paper Series, Lund University
volume
3
pages
46 pages
publisher
Knut Wicksell Centre for Financial Studies, Lund University
language
English
LU publication?
yes
id
1f9fea41-e566-4992-97ee-8e10031520ad (old id 4469404)
alternative location
http://swopec.hhs.se/luwick/abs/luwick2014_003.htm
date added to LUP
2014-06-18 14:59:10
date last changed
2016-04-16 08:45:56
@misc{1f9fea41-e566-4992-97ee-8e10031520ad,
  abstract     = {We analyze how firms hedge in the oil and gas industry. Our main finding is that CEO age determines hedging behavior. The probability of being a hedger as well as the use of linear hedging strategies decreases with CEO age. These results are consistent with an argument that financial distress, which sends a negative signal of managerial ability, is relatively more costly to younger CEOs. We also investigate the vega-theory of hedging instrument choice, finding some support for a negative relationship between vega and a) the use of derivatives and b) hedging strategies that include the sale of call options.},
  author       = {Croci, Ettore and Jankensgård, Håkan},
  keyword      = {risk management,derivative,hedging instrument,vega,CEO age},
  language     = {eng},
  pages        = {46},
  publisher    = {ARRAY(0x96d36b0)},
  series       = {Knut Wicksell Working Paper Series, Lund University},
  title        = {CEO age, risk incentives, and hedging instrument choice},
  volume       = {3},
  year         = {2014},
}