Managerial Overconfidence and Corporate Fx Risk Management

This study utilises a longitudinal design to investigate how managerial overconfidence influences corporate usage of currency derivatives with a large sample of non-financial U.S. companies. We measure managerial overconfidence using multiple approaches based on executive option holding and exercising behaviours, stock trading, firm-level investment scales and media coverage. Our findings suggest that overconfident executives tend to adopt less FX financial hedging, resulting in higher levels of foreign exchange rate exposure. Moreover, we investigate the role of executive personal traits in influencing FX financial hedging and corporate exposure to FX risk.