Production and hedging implications of executive compensation schemes

Akron, Sagi; Benninga, Simon

doi:10.1016/j.jcorpfin.2012.10.004

Journal of Corporate Finance

2013

DOI: 10.1016/j.jcorpfin.2012.10.004

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Production and hedging implications of executive compensation schemes

Sagi Akron

Simon Benninga

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Cited by 10 publications

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References 59 publications

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“…Baron () and Sandmo () develop the first models of optimal production under price uncertainty, which are extended by Danthine (), Holthausen (), and Feder et al () to incorporate optimal hedging decisions as well. See, among others, Wong (), Adam‐Müller and Panaretou (), Akron and Benninga (), and Broll and Wong () for more recent developments.…”

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Production and Anticipatory Hedging under Time‐Inconsistent Preferences

Lien

2014

Journal of Futures Markets

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This paper analyzes the production and hedging decisions of a competitive firm under price uncertainty and time‐inconsistent preferences. We show that the firm would over‐hedge and the output choice would be affected by the firm's preferences and the price distribution, thereby identifying a novel circumstance under which the full‐hedge theorem and the separation theorem may fail. Furthermore, when the firm can hedge at the same time as production or ahead of production, ex ante firm value is higher in the former case, suggesting that planning ahead for price risk may backfire in the presence of time‐inconsistent preferences. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:961–985, 2015

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Production and Anticipatory Hedging under Time‐Inconsistent Preferences

Lien

2014

Journal of Futures Markets

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Shedding light on foreign currency cash flow hedges: transparency and the hedging decision

Jin,

Marshall

2024

Rev Quant Finan Acc

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Utilizing firms in the S&P 500, we study whether greater transparency in the reporting of other comprehensive income (OCI) items, as mandated by ASU 2011-05, resulted in a reduction in information asymmetry, a change in the value relevance of this information, or a change in hedging practice. Our results show that while transparent reporting reduced information asymmetry, firms that engage in cash flow hedging do have greater information asymmetry than their counterparts that do not hedge. We find evidence that investors penalize firm value for greater volatility of OCI relative to net income volatility when reported transparently. When permitted, managers were able to mitigate the negative impact by reporting OCI only in the Statement of Shareholders’ Equity. We conclude that managers’ concerns regarding potential confusion surrounding OCI volatility following more prominent reporting led to changes in hedging behavior. After transparent reporting, we find a reduced likelihood of foreign currency cash flow (FXCF) hedges and a reduced level of FXCF hedging among firms experiencing the greatest volatility of unrealized hedging gains and losses.

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The optimal derivative-based corporate hedging strategies under equity-linked managerial compensation

Akron

2019

Emerging Markets Review

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Production and hedging implications of executive compensation schemes

Cited by 10 publications

References 59 publications

Production and Anticipatory Hedging under Time‐Inconsistent Preferences

Production and Anticipatory Hedging under Time‐Inconsistent Preferences

Shedding light on foreign currency cash flow hedges: transparency and the hedging decision

The optimal derivative-based corporate hedging strategies under equity-linked managerial compensation

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