The role of managerial characteristics in FX risk management: Who increases risk?

Abstract

We examine the impact of managerial characteristics on the choice of risk-decreasing and risk-increasing/-constant strategies. Using unique data on firm-, year-, and currency-specific FX exposure before and after hedging with corresponding hedging instruments, we are able to measure how much a CEO has been involved in risk-increasing/-constant strategies over several years. We provide evidence that firms where the CEO has an MBA degree and is older are more likely to engage in risk-increasing/-constant strategies. In addition, we find that a CEO’s affiliation to the owner’s family seems to reduce the amount of derivatives a firms uses, while hedging short tends to increase derivative volumes.