Industry Tournament Incentives and Corporate Hedging Policies

67 Pages Posted: 13 Jun 2019

See all articles by Gunratan Lonare

Gunratan Lonare

University of North Carolina at Charlotte

Ahmet Nart

University of North Carolina at Charlotte

Ahmet M. Tuncez

Adrian College

Date Written: May 31, 2019

Abstract

This paper examines how a tournament among CEOs to progress within the CEO labor market changes their tendency toward corporate hedging policies. We exploit the textual analysis of 10-Ks to generate corporate hedging proxies. We find that the likelihood and intensity to hedge increase as the CEO labor market tournament prize augments. We also find a positive relation between industry tournament incentives (ITI) and foreign exchange (FX) hedging and interest rate hedging, but cannot detect a significant link between ITI and commodity hedging. We discover the mitigating impact of the corporate hedging on the amplifier effect of ITI on the cost of debt and stock price crash risk could be the possible reasons for the positive relation between ITI and corporate hedging. Lastly, findings show that the association between ITI and corporate hedging is more pronounced for the firms having financial constraint and operating in industries having higher CEO mobility, and when CEO is not a founder or not of the retirement age.

Keywords: corporate hedging, risk management, tournament incentives, executive compensation, risk-taking, pay gap, FX hedging

JEL Classification: G32, G34, J31, J33

Suggested Citation

Lonare, Gunratan and Nart, Ahmet and Tuncez, Ahmet M., Industry Tournament Incentives and Corporate Hedging Policies (May 31, 2019). Available at SSRN: https://ssrn.com/abstract=3397444 or http://dx.doi.org/10.2139/ssrn.3397444

Gunratan Lonare (Contact Author)

University of North Carolina at Charlotte ( email )

Ahmet Nart

University of North Carolina at Charlotte ( email )

Ahmet M. Tuncez

Adrian College ( email )

110 S. Madison
Adrian, MI 49221
United States

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