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Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence

Blake Loriot, Elaine Hutson and Hue Hwa Au Yong

Australian Journal of Management, 2020, vol. 45, issue 1, 72-93

Abstract: Using a sample of 268 Australian firms over the period 2009–2014, we examine the relation between the equity-linked compensation (shares and options) of Australian executives – CEOs, CFOs and directors – and firms’ foreign exchange hedging programmes. We find that the greater the number of shares held by CEOs, the higher its exposure to exchange rate movements. While this suggests that remuneration in the form of shares has a critical downside, we also find evidence for a more positive and important role in foreign exchange risk management for the share- and option-related incentives provided to CFOs. JEL Classification: G32, G15, F31

Keywords: Derivatives; executive compensation; foreign exchange exposure; hedging; options; shareholdings (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1177/0312896219830158

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