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Managerial Stock Options and the Hedging Premium

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  • The authors are grateful to an anonymous referee, John Doukas (the editor), and seminar participants at Uppsala University and the Stockholm Institute for Transition Economics (SITE) for valuable comments. Financial support from Jan Wallanders and Tom Hedelius Foundation (Holmén and Pramborg) and the Bank of Sweden Tercentenary Foundation (Holmén) is gratefully acknowledged. The content of this article expresses the opinions of the authors alone and may not be representative of their respective institutions. Corresponding author: Martin Holmén.

Abstract

Previous studies have found mixed evidence on whether hedging increases firm value. Some studies have shown that managerial incentives may influence firm hedging. In this paper we provide evidence that when hedging is based upon incentives from managers' options, firm value decreases.

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