Executive Compensation, Hedging, and Firm Value
This paper examines the relationship between hedging activities and executive compensation of U. S. oil and gas producers and evaluates their effect on firm value. Theories of hedging based on market imperfections imply that hedging should increase the firm” s market value. On the other hand, hedging may stem from managerial risk aversion, especially when a substantial portion of executive compensation is based on equity incentives. As a result, when both managerial decisions on risk management and executive compensation are taken into account, it is of interest to investigate their impacts on firm values. To investigate these issues, we collect detailed information on the extent of hedging, executive compensation and on the valuation of oil and gas reserves. The empirical results reveal (1) a negative relationship between hedging and executives” option holding, (2) a negative relationship between hedging and the ratio of salary to total executive compensation. Thus, we provide evidence that hed ging could be motivated by managerial risk aversion. Furthermore, we show that, when allowing hedging and executive compensation to be simultaneously determined, hedging incentives and CEO” s risk-taking incentives are significantly negatively correlated. Finally, after taking into account the endogeneity between hedging and managerial risk - taking incentives, we show that firm value is significantly negatively affected by managerial hedging incentives.
Chao Chen Yanbo Jin Min-Ming Wen
California State University, Northridge National Tsinghua University, Taiwan
国内会议
南昌
英文
31-59
2007-04-13（万方平台首次上网日期，不代表论文的发表时间）