CEO Age, Risk Incentives, and Hedging Strategy

• 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.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Keyword

Vega

executive compensation

hedging

options

CEO age

Publication and Content Type

art (subject category)

ref (subject category)