PhD research: ‘Options for management do not harm shareholder’

Does a manager who receives his remuneration partly in the form of options or shares deal with the company’s financial risks in a different way? In his research, Casper Oosterhof concludes that other shareholders need not worry about this. He does, however, think that the value of optimal risk management is still being underestimated. Companies do not seem to realize that good risk management could lead to an increased value of the shares.

Oosterhof concentrated in particular on the effect of the managers’ remuneration structure on risk management decisions. It turns out that when managers use futures contracts, they will do exactly what is optimal for the shareholders regardless of their remuneration structure. This, however, is not the case when they cover all risks with put options only. Nevertheless, the decisions they then make do not deviate much from what the shareholders would want.

Curriculum vitae
Casper Oosterhof (Nijeveen, 1974) studied Economics in Groningen. The research was conducted at the Department of Finance, Investment and Accounting. He will defend his PhD in Economic Sciences on 19 December 2006, at 2.45 p.m. His thesis supervisors are Prof. F.M. Tempelaar and Prof. S.Z. Benninga. The thesis is entitled: Essays on corporate risk management and optimal hedging. Since 2004, Casper Oosterhof has been working for Rabobank Netherlands as a credit analyst.