Managerial hedging ability and firm risk

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Modern portfolio theory suggests that undiversified executives would choose to diversify their significant holdings of their firm's stock if the opportunity was available. Recent work suggests that managerial hedging is more prevalent than in years past as more innovative hedging instruments have become available to executives. Typically, unrestricted shares are used in these hedging transactions whereas restricted shares are not. In this paper, I examine whether a CEO's composition of firm stockholdings between restricted and unrestricted shares impacts the level of risk undertaken by the firm. I document a negative and statistically significant relationship between firm risk and the proportion of CEO total shareholdings that are unrestricted and this negative relationship holds for alternative measures of firm risk. This result supports the notion that the composition of a CEO's portfolio of firm stock between restricted and unrestricted shares is a significant determinant of firm risk.

Original languageEnglish
Pages (from-to)882-899
Number of pages18
JournalJournal of Economics and Finance
Volume36
Issue number4
DOIs
StatePublished - Oct 2012

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Hedging
Chief executive officer
Firm risk
Restricted stock
Modern portfolio theory
Proportion
Shareholding

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Finance

Cite this

Managerial hedging ability and firm risk. / Dunham, Lee M.

In: Journal of Economics and Finance, Vol. 36, No. 4, 10.2012, p. 882-899.

Research output: Contribution to journalArticle

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