چه کسی بازار ارز خارجی را زمان بندی می کند؟ گمانه زنی شرکت و ویژگی های مدیر عامل شرکت

This paper shows that managers' personal beliefs and individual characteristics explain a large share of the substantial time-variation of derivative use beyond firm, industry, and market fundamentals. We construct a panel data set of foreign currency derivative holdings and currency exposures for U.S. non-financial firms. We use a novel approach to build a firm-specific foreign exchange return. We find that managers adjust derivatives notional amounts in response to past foreign exchange returns, as if they were forming views on future currency prices. We then construct an empirical measure of speculative behavior for each firm to investigate the profile of the speculator. 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.

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, like the firm investment policy (Malmendier and Tate, 2005), acquisition or diversification decisions, dividend policy, interest coverage, cost-cutting policy (Bertrand and Schoar, 2003), and capital structure decisions (Malmendier et al., 2011). The behavioral approaches to corporate finance offer a useful complement to the other paradigms in the field in explaining some corporate policies (see Baker et al., 2005, for a survey). 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? In this paper, we 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. A growing theoretical literature in behavioral finance shows that several biases, like overconfidence, representativeness and narrow framing, could induce investors and managers to incorporate their views into their financial decision making. In the context of corporate risk management, some survey evidence indicates that indeed managers frequently incorporate their views when they determine the firm's derivative holdings.1 It is not feasible to measure behavioral biases directly, but we observe managers personal characteristics that the literature has linked in general to the attitude toward risk and specifically to overconfidence. Our empirical analysis builds on three crucial pieces of information that we obtain mostly through hand-collected data from a variety of sources. First, we construct a panel of large U.S. non-financial firms for 6 years that includes hand-collected information on currency derivative holdings. For the firms in our sample, managing foreign currency risk is a crucial corporate activity since the majority of them sells abroad more than 35% of the total sales.2 Second, we build a firm-specific foreign exchange return by using geographical information on the foreign sales of each firm. This variable is important to capture active views on the foreign exchange market, whenever managers predict currency returns using past information on the exchange rate. Finally, we merge the panel on firm variables with hand-collected data on personal CEO characteristics. We document a substantial time-series variation in currency derivative holdings. The annual average change in notional amounts is 56%, and 63% of the firms in our sample change their derivative position at least by 30% every year. We find that currency derivative holdings respond to the past dynamics of the foreign exchange rate, after controlling for a set of alternative hedging measures, different currency exposure proxies, firm fixed effects, and other time-varying firm characteristics. This evidence is hard to reconcile with derivatives being exclusively managed according to an optimal hedging policy. Rather, this evidence is consistent with managers adjusting derivative holdings over time according to active views, which could be explained by the behavioral finance literature with the representativeness, narrow framing and overconfidence biases. To investigate the role of CEO's beliefs and personal characteristics for corporate risk management, we construct an empirical measure of speculation obtained as the variation of derivative holdings that is not explained by fundamentals. We then use our proxy of speculation to test the hypotheses that personal manager characteristics positively correlated with overconfidence, such as young age, short experience, and an MBA degree, lead to more speculation. After controlling for the riskiness of the business environment, we obtain the striking result that manager personal characteristics increase the explanatory power for our proxy of speculation by about 50% with respect to firm and industry variables. Specifically, firms where the CEO is younger, holds an MBA degree, and has less working experience display a larger empirical measure of speculation. The most intriguing result of our paper is the positive and highly significant effect of managers holding an MBA degree on speculation. We investigate whether this finding is related to the overconfidence bias or to an information advantage using several empirical exercises. First, we look at non-MBA managers with a solid training in finance and find that they do not exhibit the same behavior. This is an indication that MBAs are unlikely to speculate because of superior finance information. Second, we construct a proxy to measure whether the deviations from fundamental hedging are successful. We find consistent evidence that deviations are not profitable and MBA managers seem to be, if anything, even worse performers than the rest of the sample. Finally, we test the predictions of the Gervais and Odean (2001) model of overconfidence. Consistent with their theory, we find that an MBA degree only matters for speculation when managers have less experience and early success. Our paper contributes to the literature by answering three related questions: whether managers time the foreign exchange market, how they do it and, most importantly, who they are. Along the first dimension (whether), we show that managers of large corporations time the foreign exchange market in adjusting currency hedging, thus adding to the extant evidence on equity and debt market timing (e.g., Baker and Wurgler, 2002, Baker et al., 2003, Faulkender, 2005 and Graham and Harvey, 2001). To identify the timing behavior, it is crucial to use the time-series dimension. Our paper is, to our knowledge, the first in the corporate risk management literature to use a panel data of firms with information on currency derivatives notional amounts for a broad range of industries over 6 years. 3 The focus of our paper on a large sample of firms across industries implies data limitations that can only be avoided by concentrating on specific single industries, such as the gold-mining sector. However, our approach to all sectors has the potential to deliver more general results. Furthermore, managers of large non-financial firms are unlikely to have superior knowledge of currency price dynamics in the same way managers of gold-mining firms have of gold prices. In this sense, we complement to the literature focusing on single industries, such as Brown et al. (2006). On the second aspect of our contribution (how), we document that managers use the past information in foreign exchange returns when timing the currency market. So far, the data limitation of observing only the total notional amount of derivatives, rather than an amount broken down by currency, was preventing a compelling empirical analysis. Our novel approach of constructing a firm-specific foreign exchange rate allows us to overcome this limitation. On the third and most important aspect of our contribution (who): manager personal characteristics have strong explanatory power over firm and industry characteristics. This striking finding is consistent with a growing literature on the importance of individual manager features in corporate decision making (e.g., Bertrand and Schoar, 2003, Malmendier and Tate, 2005 and Malmendier et al., 2011). Specifically, our results on age, educational background, and working experience, are all going in the direction that other papers have related to overconfidence (e.g., Barber and Odean, 2001 and Gervais and Odean, 2001), or more generally to a risk-taking attitude (e.g., Kumar, 2005). The remainder of the paper is organized as follows. Section 2 reviews the related theoretical literature and outlines a number of testable hypotheses. Section 3 describes the data set and documents the time-series variation of currency derivative holdings. Section 4 presents the empirical results. Section 5 discusses a series of robustness checks and additional results. Section 6 concludes.

In this paper, we hand-collect information on foreign currency derivatives and manager personal characteristics for a panel of large non-financial firms. We show a substantial time-series variability of derivative holdings. We document that managers change the notional amount of currency derivatives in response to the past dynamics of the foreign exchange rate. Managers seem to be timing the foreign-exchange market and this behavior is consistent with several behavioral biases that the theoretical literature has formalized and previous empirical studies have documented in other corporate finance settings. For each firm in our sample, we construct an empirical proxy for speculation as the residual of derivative holdings regressed on firm fundamentals and time effects. When we relate our empirical proxy for speculation to CEO personal characteristics, we find that firms speculate more when the CEO has an MBA degree, is younger, and has less working experience. The manager personal characteristics increase the explanatory power for the cross-section of speculation by about 50% with respect to firm, industry and market variables. Our empirical evidence strongly supports theories that have linked these personal characteristics to overconfidence and a more tolerant attitude toward risk. There are other related open questions left for future research. For instance, it would be interesting to better understand why the CEO personal characteristics affect currency derivative holdings, when day-to-day hedging decisions for large corporations are done mostly at the Treasurer level. A possible explanation would be that CEOs are imprinting their personal marks on the companies they manage at all levels. This is certainly plausible for the compensation variables, which may be good proxies for the overall compensation policy of the management. As regards the other personal characteristics, our findings could be the outcome of how the hedging results are evaluated. For example, younger CEOs, CEOs with less working experience, or CEOs holding an MBA degree, could “prize” relatively more absolute results, rather than hedging results relative to the underlying exposure, giving an implicit incentive to the Treasurer to time the currency market.