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CEO risk preferences and hedging decisions: A multiyear analysis

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  • Doukas, John A.
  • Mandal, Sonik

Abstract

Theory and previous empirical studies suggest that CEO risk preferences affect hedging. We challenge this idea in a 5-year time series setting by using inside debt (i.e., CEO pension and deferred compensation) and the CEO Vega and CEO Delta, as proxies of CEO risk preferences, and document that neither risk-averse (i.e., debt like compensation) nor risk-seeking (i.e., convex compensation) inducing CEO compensation packages influence corporate hedging. Moreover, we find CEOs who have more previous work experience and high job tenure to be positively related to hedging.

Suggested Citation

  • Doukas, John A. & Mandal, Sonik, 2018. "CEO risk preferences and hedging decisions: A multiyear analysis," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 131-153.
  • Handle: RePEc:eee:jimfin:v:86:y:2018:i:c:p:131-153
    DOI: 10.1016/j.jimonfin.2018.04.007
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    Keywords

    Hedging; CEO risk preferences; CEO personal characteristics;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G3 - Financial Economics - - Corporate Finance and Governance

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