CEO spin and the stock price crash

Bin Liu and Xuemei Zhou

Finance Research Letters, 2025, vol. 81, issue C

Abstract: This study develops a model elucidating the mechanism by which CEO exaggeration triggers stock price collapses. CEOs leverage private information to attract investment through premarket boasting. Two investor archetypes interpret this information differently: Type I investors, possessing superior analytical capabilities, accurately discern true value; Type II investors, who rely on CEO pronouncements, may overestimate firm worth. Equilibrium prices depend on stock payoff, CEO boasting, and market liquidity. The model demonstrates that equilibrium prices exhibit a nonlinear dependence on the extent to which investors focus on CEO boasting, potentially culminating in a stock price collapse.

Keywords: CEO boasting; Investor heterogeneity; Information structures (search for similar items in EconPapers)
JEL-codes: C60 G10 G12 G14 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612325007093
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007093

DOI: 10.1016/j.frl.2025.107449

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().