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CEO age, risk incentives, and hedging instrument choice

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Author

  • Ettore Croci
  • Håkan Jankensgård

Summary, in English

We analyze how firms hedge in the oil and gas industry. Our main finding is that CEO age determines hedging behavior. The probability of being a hedger as well as the use of linear hedging strategies decreases with CEO age. These results are consistent with an argument that financial distress, which sends a negative signal of managerial ability, is relatively more costly to younger CEOs. We also investigate the vega-theory of hedging instrument choice, finding some support for a negative relationship between vega and a) the use of derivatives and b) hedging strategies that include the sale of call options.

Publishing year

2014

Language

English

Publication/Series

Knut Wicksell Working Paper Series, Lund University

Volume

3

Document type

Working paper

Publisher

Knut Wicksell Centre for Financial Studies, Lund University

Topic

  • Business Administration

Keywords

  • risk management
  • derivative
  • hedging instrument
  • vega
  • CEO age

Status

Published