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

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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.

Original languageEnglish
Pages (from-to)72-93
Number of pages22
JournalAustralian Journal of Management
Volume45
Issue number1
DOIs
Publication statusPublished - Feb 2020

Keywords

  • Derivatives
  • executive compensation
  • foreign exchange exposure
  • hedging
  • options
  • shareholdings

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