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CEO Age, Risk Incentives, and Hedging Strategy

Croci, Ettore; del Guidice, Alfonso and Jankensgård, Håkan LU (2017) In Financial Management p.687-716
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.

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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Vega, executive compensation, hedging, options, CEO age
in
Financial Management
pages
687 - 716
publisher
Wiley-Blackwell
external identifiers
  • scopus:85028917211
  • wos:000409200900005
ISSN
0046-3892
DOI
10.1111/fima.12166
language
English
LU publication?
yes
id
3c2f482d-71ee-40c1-a5cf-ff2ab00afb97
date added to LUP
2016-11-21 14:06:33
date last changed
2018-01-16 13:21:32
@article{3c2f482d-71ee-40c1-a5cf-ff2ab00afb97,
  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.<br/><br/>},
  author       = {Croci, Ettore and del Guidice, Alfonso and Jankensgård, Håkan},
  issn         = {0046-3892},
  keyword      = {Vega,executive compensation,hedging,options,CEO age},
  language     = {eng},
  pages        = {687--716},
  publisher    = {Wiley-Blackwell},
  series       = {Financial Management},
  title        = {CEO Age, Risk Incentives, and Hedging Strategy},
  url          = {http://dx.doi.org/10.1111/fima.12166},
  year         = {2017},
}