Taking a View: Corporate Speculation, Governance, and Compensation

摘要

Using responses to a well-known confidential survey, we study corporations' use of derivatives to "take a view" on interest rate and currency movements. Characteristics of speculators suggest that perceived information and cost advantages lead them to take positions actively; that is, they do not speculate to increase risk by "betting the ranch." Speculating firms encourage managers to speculate through incentive-aligning compensation arrangements and bonding contracts, and they use derivatives-specific internal controls to manage potential abuse. Finally, we examine whether investors reading public corporate disclosures are able to identify firms that indicate speculating in the confidential survey; they are not.