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Comments: CEO hedging opportunities and the weighting of performance measures in compensation

Comments: CEO hedging opportunities and the weighting of performance measures in compensation. The paper explores the effects of CEO hedging opportunities (or hedging costs) and performance on compensation.

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Comments: CEO hedging opportunities and the weighting of performance measures in compensation

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  1. Comments: CEO hedging opportunities and the weighting of performance measures in compensation

  2. The paper explores the effects of CEO hedging opportunities (or hedging costs) and performance on compensation. • When managers can perfectly hedge firm specific risk, the interests of managers and shareholders are not aligned. • Two main regression models are proposed for the empirical study.

  3. Comments: • This paper is seeking to answer a reasonably interesting question in quite an interesting setting. • However, I believe there are a number of serious limitations in this paper, including the hypothesis development, the choice of sample, the empirical methodology, and the interpretation of the results. • My specific concerns are contained in my review. • The authors need to better develop their hypotheses. • The paper only explores the effects of CEO hedging opportunities and performance on compensation. • But some of the arguments are based on theory related to the effect of compensation on performance.

  4. The theoretical underpinning needs to be strengthened. • The hypothesis development • Provides a better link between the empirical results and hypotheses. • The assumption of CEO Hedge • Bettis et al (2001) report only 30% of executives hedge. • Measures of executive hedge vs hedge opportunities. • The contribution of the paper needs to be more clearly identified.

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