Managers are acknowledged to have their own style when taking corporate
decisions. Personal characteristics of CEOs are empirically important
determinants of a large range of corporate variables. The behavioural
approaches to corporate finance offer a useful complement to the other
paradigms in the field in explaining some corporate policies.
However, there are still a number of unexplored research questions. One of
these is to what extent the corporate risk management policies of non-financial
firms departs from textbook hedging.
More specifically, do managers select the amount of derivatives according to
some optimal hedging policy, or are they just taking active views, which
reflect their personal preferences, attitudes, or skills?
A growing theoretical literature in behavioural finance shows that several
biases, like overconfidence, representativeness and narrow framing, could
induce investors and managers to incorporate their views into their financial
In this paper, the researchers study to what extent CEO personal beliefs and
individual characteristics explain the time-series variation of foreign
currency derivatives beyond industry, firm, and market fundamentals.
They find that firms where the CEO holds an MBA degree, is younger, and has
less previous working experience speculate more. These results are consistent
with overconfident managers taking more risk.