The Causal Effect of Option Pay on Corporate Risk Management

Tor-Erik Bakke, Hamed Mahmudi, Chitru S. Fernando and Jesus M. Salas
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Tor-Erik Bakke: University of OK
Hamed Mahmudi: University of OK
Chitru S. Fernando: University of OK
Jesus M. Salas: Lehigh University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: This study provides strong evidence of a causal effect of risk-taking incentives provided by option compensation on corporate risk management. We utilize the passage of FAS 123R, which required firms to expense options, to investigate how CEO option compensation affects the hedging behavior of oil and gas firms. Firms that did not expense options before FAS 123R significantly reduced option pay, which resulted in a large increase in their hedging intensity compared to firms that did not use options or expensed their options voluntarily prior to FAS 123R.

JEL-codes: G30 G32 G38 G39 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-ger, nep-hrm and nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:15-08

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