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Are CEOs incentivized to shelter good information?

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  • Hongrui Feng
  • Yuecheng Jia

Abstract

Prior theoretical studies on the agency problem hold different opinions from the empirical literature on two questions: (a) Are CEOs incentivized to shelter good information? (b) Are CEOs incentivized to evenly shelter good and bad information? This paper demonstrates that CEOs with high pay‐performance incentives tend to successfully shelter good information rather than bad information. Furthermore, CEOs with high pay‐performance incentives shelter good information by using real earnings management and textual manipulation but not accrual‐based earnings management. These asymmetric information manipulation behaviors help to decrease corporate cash flow volatility as well as the jump and crash risk on the stock market.

Suggested Citation

  • Hongrui Feng & Yuecheng Jia, 2021. "Are CEOs incentivized to shelter good information?," The Financial Review, Eastern Finance Association, vol. 56(1), pages 109-132, February.
    • Handle: RePEc:bla:finrev:v:56:y:2021:i:1:p:109-132
    DOI: 10.1111/fire.12249
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