Do ownership structures affect the risk incentive provided by managerial portfolio holdings? An empirical analysis of UK alternative investment market companies

This paper analyzes the wealth and risk incentive effects of managerial options and
shareholdings on the hedging probability of UK listed Alternative Investment Market
(AIM) companies. We find that the wealth incentive effect provided by managerial
option holdings increases the hedging likelihood. On the contrary, the wealth
incentive effect provided by managerial shareholdings decreases the hedging
likelihood. Further tests show that the incentive effect provided by managerial
shareholdings is significantly different if managers are not substantial shareholders of the company. Managers with substantial ownership are significantly less risk averse. Thus, the size and ownership structure characteristics of AIM companies seem to result in similarities between managers‟ and owners‟ behavior.