**6. Conclusions**

In this paper, we empirically examine the influence of CEO pension incentive on corporate risk management activity by employing a sample of multinational firms over the period of 2006 to 2015 and across a wide array of industries. The results show a significantly positive impact of pension incentive on hedging activity. More liability-based incentives encourage managers to adopt hedging or/and increase hedging position. We also verify that such a positive relationship cannot be attributed to the endogenous issue of compensation design.

Furthermore, we find that the influence of pension incentive on hedging is more pronounced for the firms with good governance than those with poor governance. The results help untangle the role of compensation in the mechanism of governance by providing the evidence to support the optimal contracting hypothesis. Lastly, we further investigate the value of extra investment in hedging position by following Faulkender and Wang's (2006) methodology, especially in the context of pension incentive and corporate governance. We detect that a higher level of pension incentive is associated with the higher value of hedging, particularly for the firms with strong shareholder power. This result echoes the theory of optimal contracting.

Taken together, this research contributes to the extant literature on the role of pension incentive by providing new evidence about its economic influence on corporate risk management. Although the existing literature reports mixed results pertaining to equity-based incentives, the findings documented in this research clearly show that liability-based compensation creates a valuable incentive and has a material impact on firms' active risk management. Our results warrant further attention to the design of pension incentive and its interplay with corporate governance.

**Author Contributions:** Conceptualization, J.J.C., and I.T.; Methodology, J.J.C.; Software, J.J.C., and Y.G.; Investigation, J.J.C., and Y.G.; Data collection and preparation, J.J.C., Y.G., and I.T.; Review and validation, J.J.C. All authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **Appendix A**



#### **Table A1.** *Cont.*
