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Who times the foreign exchange market? Corporate speculation and CEO characteristics

Alessandro Beber, +2 more
- 01 Dec 2012 - 
- Vol. 18, Iss: 5, pp 1065-1087
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TLDR
This paper showed that managers' personal beliefs and individual characteristics explain a large share of the substantial time-variation of derivatives use beyond rm, industry, and market fundamentals, and that firms where the CEO holds an MBA degree, is younger, and has less previous working experience speculate more.
About: 
This article is published in Journal of Corporate Finance.The article was published on 2012-12-01 and is currently open access. It has received 72 citations till now. The article focuses on the topics: Foreign exchange risk & Foreign exchange market.

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Behavioral CEOs: The Role of Managerial Overconfidence

Ulrike Malmendier, +1 more
- 01 Nov 2015 - 
TL;DR: In this paper, the authors provide a theoretical and empirical framework that allows them to synthesize and assess the burgeoning literature on CEO overconfidence, and they also provide empirical evidence that overconfidence matters for corporate investment decisions in a framework that explicitly addresses the endogeneity of firms' financing constraints.
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What’s in an education? Implications of CEO education for bank performance

Tim King, +2 more
- 01 Apr 2016 - 
TL;DR: In this article, the authors find evidence that banks led by CEOs with MBAs outperform their peers when compensation structures are geared towards greater risk-taking incentives, and when banks follow riskier or more innovative business models.
Journal ArticleDOI

Derivative usage and firm value: The influence of agency costs and monitoring problems

Larry Fauver, +1 more
- 01 Dec 2010 - 
TL;DR: Using derivative usage data on over 1746 firms headquartered in the U.S. during the 1991 through 2000 time period, this paper found that firms with greater agency and monitoring problems (i.e., firms that are less transparent, face greater agency costs, have weaker corporate governance, larger information asymmetry problems, and overall poorer monitoring) exhibit a negative association between Tobin's Q and derivative usage.
Journal ArticleDOI

The influence of CEO demographic characteristics on corporate risk-taking: evidence from Chinese IPOs

Hisham Farag, +1 more
- 11 Mar 2016 - 
TL;DR: Li et al. as discussed by the authors investigated the influence of chief executive officers' demographic characteristics (e.g. age, board experience, professional experience, education and gender) on corporate risk-taking for a sample of 892 IPOs floated in both the Shanghai and Shenzhen Stock Exchanges.
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Does Corporate Headquarters Location Matter for Firm Capital Structure

Wenlian Gao, +2 more
- 01 Mar 2011 - 
TL;DR: This article studied the impact of corporate headquarters location on capital structure policies and found that firms exhibit conformity in their financing policies to those of geographically proximate firms and that the location of corporate HQs helps explain the cross-sectional variation of capital structure in the United States.
References
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Journal ArticleDOI

Theory of the firm: Managerial behavior, agency costs and ownership structure

Michael C. Jensen, +1 more
- 01 Oct 1976 - 
TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
Book ChapterDOI

Prospect theory: an analysis of decision under risk

Daniel Kahneman, +1 more
- 01 Mar 1979 - 
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
Journal ArticleDOI

Prospect theory: analysis of decision under risk

Daniel Kahneman, +1 more
- 01 Jan 1979 - 
Journal ArticleDOI

Toward a positive theory of consumer choice

Richard H. Thaler
- 01 Mar 1980 - 
TL;DR: The economic theory of the consumer is a combination of positive and normative theories as discussed by the authors, which describes how consumers should choose, but it is also described how they do choose, and in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory.
Journal ArticleDOI

Maximum likelihood estimation of misspecified models

Halbert White
- 01 Jan 1982 - 
TL;DR: In this article, the consequences and detection of model misspecification when using maximum likelihood techniques for estimation and inference are examined, and the properties of the quasi-maximum likelihood estimator and the information matrix are exploited to yield several useful tests.
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- 01 Dec 1993 - 

The Determinants of Firms' Hedging Policies

Clifford W. Smith, +1 more
- 01 Dec 1985 - 

Managing with Style: The Effect of Managers on Firm Policies

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- 01 Nov 2003 - 

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Frequently Asked Questions (8)
Q1. What are the contributions mentioned in the paper "Who times the foreign exchange market? corporate speculation and ceo characteristics∗" ?

This paper shows that managers ’ personal beliefs and individual characteristics explain a large share of the substantial time-variation of derivatives use beyond firm, industry, and market fundamentals. The authors then construct an empirical measure of speculative behavior for each firm to investigate the profile of the speculator. 

There are other related open questions left for future research. This is certainly plausible for the compensation variables, which may be good proxies for the overall compensation policy of management. 

Scaling the notional amount of derivatives by total assets is the most frequent choice in the corporate risk management literature (e.g., Graham and Rogers, 2002; Knopf, Nam and Thornton, 2002). 

A possible common explanation behind the negative sign of the age and the working experience of the CEO could be overconfidence, in line with the argument of Gervais and Odean (2001). 

This discussion highlights that several managerial biases - representativeness, mental accounting, loss aversion and overconfidence - could rationalize selective hedging. 

The insignificant finding on corporate governance was somewhat expected, given that the speculative behavior the authors identify is likely to depend on behavioral biases of the CEO, rather than on a misalignment of incentives between managers and shareholders. 

These models argue that managers are opportunistic and have some discretion inside the firm that they can use to alter corporate decisions in favor of their own objectives. 

The age, tenure and previous working experience of the manager can affect the incentives to speculate not only through overconfidence but also for reasons related to carrier and reputation concerns, skill, or risk aversion directly.