Executive Compensation and Hedging Behavior: Evidence from Taiwan

Abstract

This study examines the relationship between managerial risk-taking incentives and hedging derivatives usage. We have three results. First, executives` risk-taking incentives are negatively related to the hedging derivatives holdings, a result consistent with equity-based compensation that promotes risk taking. Second, the indexed stock options appear to create stronger risk-taking incentives than the traditional stock options. Third, managerial risk-taking incentives are significantly related to executive stock options but not stock holdings.