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Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence

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  • Blake Loriot
  • Elaine Hutson
  • Hue Hwa Au Yong

Abstract

Using a sample of 268 Australian firms over the period 2009–2014, we examine the relation between the equity-linked compensation (shares and options) of Australian executives – CEOs, CFOs and directors – and firms’ foreign exchange hedging programmes. We find that the greater the number of shares held by CEOs, the higher its exposure to exchange rate movements. While this suggests that remuneration in the form of shares has a critical downside, we also find evidence for a more positive and important role in foreign exchange risk management for the share- and option-related incentives provided to CFOs. JEL Classification: G32, G15, F31

Suggested Citation

  • Blake Loriot & Elaine Hutson & Hue Hwa Au Yong, 2020. "Equity-linked executive compensation, hedging and foreign exchange exposure: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 45(1), pages 72-93, February.
    • Handle: RePEc:sae:ausman:v:45:y:2020:i:1:p:72-93
    DOI: 10.1177/0312896219830158
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    More about this item

    Keywords

    Derivatives; executive compensation; foreign exchange exposure; hedging; options; shareholdings;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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