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CEO centrality and stock price crash risk

Author

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  • Krishnamurti, Chandrasekhar
  • Chowdhury, Hasibul
  • Han, Hien Duc

Abstract

We examine the effect of the CEO’s network centrality on a firm’s future stock price crash risk with a longitudinal dataset of S&P 1500 companies from 1999 to 2019. We find that firms with more central CEOs are less likely to show bad news hoarding behavior, leading to lower future stock price crash risk. Our results hold even after controlling for other CEO characteristics and the social connectedness of directors and are also robust to alternate measures. We further find that firms with better-connected CEOs have lower likelihood of using accounting manipulations with aggressive accruals and real earnings management, preventing the accumulation of bad news. Overall, our results support the notion that more connected CEOs may provide a governance role via reducing the stockpiling of bad news and mitigation of stock price crash risk.

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  • Krishnamurti, Chandrasekhar & Chowdhury, Hasibul & Han, Hien Duc, 2021. "CEO centrality and stock price crash risk," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000952
    DOI: 10.1016/j.jbef.2021.100551
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    3. Chowdhury, Hasibul & Hossain, Ashrafee & Tan, Kelvin & Zheng, Jiayi, 2022. "Do external labor market incentives improve labor investment efficiency?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).

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    More about this item

    Keywords

    CEO network centrality; Stock price crash risk; Bad news hoarding;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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