Hedging Away: Derivatives Blur Executive Compensation Incentives

New research identifies an increasing practice of corporate insiders and CEOs hedging their ownership in the firms they manage. Financial engineering, also called financial innovation, has offered a way for executives to reduce the "Sensitivity" of their firm-related wealth to stock price through the use of derivates. Troubling was the finding about the timing of the use of some of the derivatives - these more opaque transactions were used in lieu of selling stock when a decline in stock price was expected.

Provided by: Southern Methodist University Topic: CXO Date Added: Jan 2011 Format: HTML

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