**Hypothesis 1 (H1).** *Pension incentive has a positive impact on corporate hedging activity.*

Given that our first hypothesis reveals an important relationship between pension incentive and hedging behavior, there is another question that remains unclear, namely the interplay of pension incentive and governance on this relation. To disentangle the relation between corporate hedging and CEO pension incentive in the different context of governance, we propose our second hypothesis: Pension incentive is a part of the optimal contract that is designed to mitigate agency costs of debt (e.g., risk-shifting) and agency costs of equity (effort-shirking). Under this logic, we would expect CEOs with a larger amount of debt-like compensation relative to equity compensation (i.e., a higher CEO pension relative leverage) to be more active hedgers of the "priced" risk. Since corporate hedging is an outcome of an optimal compensation contract for CEOs, we anticipate that the predicted positive relation between hedging and executives' pension incentive should be observed in firms with strong corporate governance. Thus, our second hypothesis can be offered as:
