Open AccessCEO stock and option holdings as a determinant of option hedging by gold mining firms
Author(s) -
Ali Jebli,
Nabil Khoury,
Marko Savor
Publication year - 2008
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv5i2c4p1
Subject(s) - hedge , business , gold mining , production (economics) , stock (firearms) , flexibility (engineering) , context (archaeology) , finance , industrial organization , economics , microeconomics , mechanical engineering , ecology , paleontology , management , engineering , biology , chemistry
This paper seeks primarily to analyze CEO holdings of stocks and options in their firm as a determinant of the decision to hedge and the intensity of hedging with option-like securities in the gold mining industry. The findings show that CEO holdings play an important role in the choice and intensity of the use of option-like hedging instruments. In addition, results also show that the intensity of option-like instrument use for hedging is diminished when the CEO is also the chairman of the board. This original finding provides additional insight into the decision making process in this context. Moreover, our results show that when non-hedgeable quantity risk and hedgeable price risk are highly correlated, gold mining firms resort to operational hedging strategies through their production flexibility. Finally, investment opportunities as well as the high correlation between production levels and gold prices seem to have a negative impact on the decision to use option-like hedging in the gold mining industry.