Powerful CEOs and stock price crash risk

Md Al Mamun, Balasingham Balachandran and Huu Nhan Duong

Journal of Corporate Finance, 2020, vol. 62, issue C

Abstract: We find that powerful chief executive officers (CEOs) are associated with higher crash risk. The positive association between CEO power and crash risk holds when controlling for earnings management, tax avoidance, chief executive officer's option incentives, and CEO overconfidence. Firms with powerful CEOs have higher probability of financial restatements, lower proportion of negative to positive earnings guidance, and lower ratio of negative to positive words in their financial statements. The association between powerful CEOs and higher crash risk is mostly evident among firms with higher sensitivity of CEO wealth to stock prices and when CEOs have lower general skills. External monitoring mechanisms weaken but do not eliminate the association between powerful founder CEOs and higher crash risk.

Keywords: CEO power; Delta; CEO overconfidence; CEO general skills; Stock price crash risk; Corporate governance (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (73)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:62:y:2020:i:c:s0929119920300262

DOI: 10.1016/j.jcorpfin.2020.101582

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