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Walking the Walk: Inside Ownership and Selective Hedging

Jankensgård, Håkan LU (2015)
Abstract
Firms’ derivative portfolios are largely unpredictable, in the sense that the previous year’s portfolio is a poor predictor of the current one. This unpredictability partly reflects a common corporate practice known as ‘selective hedging’, i.e. adjusting the timing and size of hedging programs bases on market views. In this paper I examine if corporate governance arrangements influence the extent of selective hedging using hand-collected data from the oil and gas industry. The most robust result I find is that selective hedging increases in inside ownership, suggesting that entrenched managers hedge more selectively when outside monitoring is weak. It also suggests that overconfidence is real. Since they are betting with their own money,... (More)
Firms’ derivative portfolios are largely unpredictable, in the sense that the previous year’s portfolio is a poor predictor of the current one. This unpredictability partly reflects a common corporate practice known as ‘selective hedging’, i.e. adjusting the timing and size of hedging programs bases on market views. In this paper I examine if corporate governance arrangements influence the extent of selective hedging using hand-collected data from the oil and gas industry. The most robust result I find is that selective hedging increases in inside ownership, suggesting that entrenched managers hedge more selectively when outside monitoring is weak. It also suggests that overconfidence is real. Since they are betting with their own money, these managers and directors are, in an important sense, not only talking the talk but also walking the walk. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working Paper
publication status
unpublished
subject
keywords
Selective hedging, agency costs, corporate governance, inside ownership
language
English
LU publication?
yes
id
b4746302-070c-4d0e-97f1-e0c2be506dc0 (old id 7869416)
date added to LUP
2015-09-18 16:03:53
date last changed
2016-04-16 11:37:27
@misc{b4746302-070c-4d0e-97f1-e0c2be506dc0,
  abstract     = {Firms’ derivative portfolios are largely unpredictable, in the sense that the previous year’s portfolio is a poor predictor of the current one. This unpredictability partly reflects a common corporate practice known as ‘selective hedging’, i.e. adjusting the timing and size of hedging programs bases on market views. In this paper I examine if corporate governance arrangements influence the extent of selective hedging using hand-collected data from the oil and gas industry. The most robust result I find is that selective hedging increases in inside ownership, suggesting that entrenched managers hedge more selectively when outside monitoring is weak. It also suggests that overconfidence is real. Since they are betting with their own money, these managers and directors are, in an important sense, not only talking the talk but also walking the walk.},
  author       = {Jankensgård, Håkan},
  keyword      = {Selective hedging,agency costs,corporate governance,inside ownership},
  language     = {eng},
  title        = {Walking the Walk: Inside Ownership and Selective Hedging},
  year         = {2015},
}