خطر سقوط قیمت سهام و قدرت مدیر عامل اجرایی
Abstract
JEL classifications
۱٫ Introduction
۲٫ Literature review and hypothesis development
۳٫ Research design
۴٫ Main results
۵٫ Robustness tests
۶٫ Additional tests
۷٫ Conclusion
Appendix A. Variable definition
References
Abstract
This study examines the impact of stock price crash risk on future CEO power. Using a large panel sample with 17,816 firm-year observations, we posit and find a significant negative impact of stock price crash risk on CEO power, suggesting that CEO power becomes smaller after stock price crashes. We also find that our results are stronger for firms with female CEOs and are largely driven by firms with shorter-tenure CEOs. In addition, we find that the significant negative impact of stock price crash risk on CEO power is diminished for firms with strong corporate governance. Our study responds to the call in Habib, Hasan, and Jiang (2018) by providing more empirical evidence on the consequences of stock price crash risk.
Introduction
A large body of finance literature (e.g., Hong and Stein, 2003) documents that stock returns often exhibit negative skewness (i.e., more negative stock price movements than positive price movements). One critical factor that causes the negative skewness is the managerial tendency to withhold bad news for an extended period of time (e.g., Jin and Myers, 2006). When the accumulation of bad news reaches a relatively high level, the manager has to release or disclose the bad news to the investors, leading to a large negative stock price movement (i.e., a large price drop). This type of price drop risk is known as stock market crash risk (hereafter crash risk), which has recently received tremendous attention in academic research. Habib et al. (2018) find that the majority of recent research has centered on the determinants of crash risk, but little research has been devoted to investigate the consequences of crash risk.1 Hence, Habib et al. (2018) call for more empirical evidence to better understand the consequences of crash risk by stating that “we believe that there is immense potential for future research in the area of crash risk consequences (page 36)”. The purpose of this study is to respond to the call in Habib et al. (2018) by providing more empirical evidence on crash risk consequences. Specifically, we explore the relation between crash risk and future CEO power, an important managerial characteristic that has been extensively studied in accounting and finance literature. We hypothesize that crash risk is negatively related to future CEO power for two reasons. First, CEO power increases crash risk (Mamun et al., 2019). Habib et al. (2018) argue that rational firms should limit or eliminate certain factors that increase crash risk after stock price crashes. Hence, we expect that after price crashes, rational firms curtail CEO power. Second, CEO power is associated with negative firm outcomes including low market valuation, poor performance and low bond ratings (e.g., Liu and Jiraporn, 2010; Bebchuk et al., 2011).