Management often conducts hedging activities that benefit management at the expense of the shareholders. The field of finance called agency theory frequently argues that management is generally LESS risk averse than are shareholders.

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Agency theory often argues that management is more risk-averse than shareholders because managers have more of their personal wealth and human capital tied to the company, making them less willing to undertake risky projects that could jeopardize their employment or the stability of their compensation. Shareholders, on the other hand, can diversify their investment risk across multiple companies.

Management Often Conducts Hedging Activities That Benefit Management at the Expense