CFO pay convexity, risk taking and corporate hedging

This paper studies how a CFO's risk-taking incentives affect corporate hedging by utilising hand-collected data from 2009 to 2019 on corporate hedging and managerial compensation for a sample of US oil and gas firms. 

The relative convexity of CFO equity compensation negatively affects the likelihood and extent of hedging.

When the CFO and CEO have diverging risk-taking incentives, the relative convexity of the CFO's equity payoff prevails over that of the CEO.

This evidence underscores the primary role of the CFO in steering a firm's hedging strategy. 

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The Authors at the Department of Management: Massimiliano Barbi