Does CEO Risk-Taking Decision Affect the Relation between Hedging and Firm Value? –Evidence from the U.S. Oil and Gas Producers

• In Event: Financial Accounting Issues: International Evidence II

Abstract

This paper studies the relation between CEO risk-taking incentives and corporate hedging in a sample of U.S. oil and gas producers over the period of 1998-2008. We show that CEOs whose compensation induces more risk-taking tend to hedge less. In addition, we examine the effect of hedging on firm value where the extent of hedging is treated as an endogenous variable. We show that hedging is not related to higher firm value. In fact, our results point to a negative relation between hedging and firm value. This is a new finding in this industry. The evidence suggests that when hedging stems from personal motives, it can lead to lower firm value.

Authors

• Chao Chen, Fudan University

• Yanbo Jin, California State University, Northridge

• Yang Zhao, Fudan University