The effect of managerial bonus plans on corporate derivatives usage
This paper examines the effect of risk management incentives resulting from managerial bonus plans on firms' derivatives usage. Partitioning the sample into firms whose managers are more likely to face convexity or concavity in the bonus payoff function, we find a negative relation between bonus plans and derivatives usage for firms in the convex region and a positive relation for firms in the concave region. These results provide evidence that the incentives inherent in managerial bonus plans cause managers to increase or decrease firm risk in order to maximize their expected bonus payments.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. " On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-84, March.
- John R. Graham & Daniel A. Rogers, 2002. "Do Firms Hedge in Response to Tax Incentives?," Journal of Finance, American Finance Association, vol. 57(2), pages 815-839, 04.
- Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September.
- Shawn D. Howton & Steven B. Perfect, 1998. "Currency and Interest-Rate Derivatives Use in US Firms," Financial Management, Financial Management Association, vol. 27(4), Winter.
- Rajgopal, Shivaram & Shevlin, Terry, 2002. "Empirical evidence on the relation between stock option compensation and risk taking," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 145-171, June.
- Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
- Mian, Shehzad L., 1996. "Evidence on Corporate Hedging Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 419-439, September.
- DeFusco, Richard A & Johnson, Robert R & Zorn, Thomas S, 1990. " The Effect of Executive Stock Option Plans on Stockholders and Bondholders," Journal of Finance, American Finance Association, vol. 45(2), pages 617-27, June.
- Henk Berkman & Michael E. Bradbury, 1996. "Empirical Evidence on the Corporate Use of Derivatives," Financial Management, Financial Management Association, vol. 25(2), Summer.
- Gaver, Jennifer J. & Gaver, Kenneth M. & Austin, Jeffrey R., 1995. "Additional evidence on bonus plans and income management," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 3-28, February.
- Rogers, Daniel A., 2002. "Does executive portfolio structure affect risk management? CEO risk-taking incentives and corporate derivatives usage," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 271-295, March.
- John D. Knopf & Jouahn Nam & John H. Thornton Jr., 2002. "The Volatility and Price Sensitivities of Managerial Stock Option Portfolios and Corporate Hedging," Journal of Finance, American Finance Association, vol. 57(2), pages 801-813, 04.
- Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
- Larry D. Wall & John J. Pringle, 1987. "Alternate explanations of interest rate swaps," Proceedings 154, Federal Reserve Bank of Chicago.
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:18:y:2008:i:3:p:229-243. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.