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Managerial Incentives And The Use Of Foreign-Exchange Derivatives By Banks

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  • Lee C. Adkins
  • David A. Carter
  • W. Gary Simpson

Abstract

We examine the effect of managerial compensation and ownership on the use of foreign-exchange derivatives by U.S. bank holding companies. We focus on derivatives used for purposes other than trading to investigate derivative use in a hedging framework. We use instrumental variables probit and sample-selection models to estimate the effects of endogenous and exogenous factors on the probability and extent of foreign-exchange derivatives used. We find that the use of derivatives is inversely related to option awards but positively related to managerial ownership. Finally, our results suggest that ownership by large institutional shareholders provides incentive for managers to hedge. 2007 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 30 (2007)
Issue (Month): 3 ()
Pages: 399-413

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Handle: RePEc:bla:jfnres:v:30:y:2007:i:3:p:399-413

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Web page: http://www.southwesternfinance.org/
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Cited by:
  1. Belkhir, Mohamed & Boubaker, Sabri, 2013. "CEO inside debt and hedging decisions: Lessons from the U.S. banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 223-246.
  2. Lee C. Adkins, 2009. "An Instrumental Variables Probit Estimator Using Gretl," EHUCHAPS, Universidad del País Vasco - Facultad de Ciencias Económicas y Empresariales.
  3. Belkhir, Mohamed, 2013. "Do subordinated debt holders discipline bank risk-taking? Evidence from risk management decisions," Journal of Financial Stability, Elsevier, vol. 9(4), pages 705-719.
  4. Dewally, Michaël & Shao, Yingying, 2013. "Financial derivatives, opacity, and crash risk: Evidence from large US banks," Journal of Financial Stability, Elsevier, vol. 9(4), pages 565-577.

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