Research On The Impact Of Executive Stock Option Incentives On Exchange Rate Risk Exposure Of Listed Companies

With the reform of the exchange rate system,the proposal of the ?one belt and one road? and the entry of the RMB into the SDR currency basket,the marketization and internationalization of the RMB have been continuously improved,which has made Chinese companies face exchange rate risk regardless of whether they have foreign exchange transactions.As a convex incentive tool,stock option can solve the problem of agency conflicts caused by executives' risk aversion.However,China's stock option incentive plan has the characteristics of ?one-time grant,installment exercise,and short validity period?.It is worth exploring what impact it will have on the company's exchange rate risk exposure.This paper takes a sample of listed companies that have successfully implemented stock option incentive in China's non-financial industry from 2006-2017,using B-S model to calculate the sensitivity of executive wealth to stock price-Delta and the sensitivity of executive wealth to stock return volatility-Vega in China's stock options.Jorion's classical two-factor model is used to measure the exchange rate risk exposure of listed companies,and its absolute value reflects the level of exchange rate risk-taking of executives.The variables of executive characteristics such as age,executive tenure,executive cash compensation and executive education background are selected as variables to control the risk attitude of managers.The company size,asset-liability ratio,book-to-market ratio and quick ratio are selected as variables to control the company's characteristics.Study the effect of Delta and Vega on exchange rate risk exposure.The results show that: Firstly,stock option incentive does not promote executives to undertake exchange rate risk,but leads executives to avoid exchange rate risk,that is,executives may actively adopt operational or financial hedging strate gies to hedge the exchange rate risk of companies,the company has lower exchange rate risk exposure levels.In addition,the shorter the validity period,the stronger the exchange rate risk aversion incentive effect of stock options.However,the amount of stock options granted by the company has no effect on the incentive effect of stock options.Secondly,the variables of executive characteristics can reflect the risk preference of executives,younger and the longer the CEO tenure,executives are more willing to undertake exchange rate risk,otherwise,granting higher cash compensation to executives can also reduce exchange rate risk aversion.These conclusions have certain guiding significance for companies to design stock option incentive plan and manage exchange rate risk.