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Keep calm and carry on: Do emotionally stable executives reduce stock price crash risk?

Author

Listed:
  • Guo, Jintong
  • Cheng, Xiyun
  • Zhang, Ziyi
  • Ding, Rui

Abstract

This paper investigates the effect of executives’ emotional stability on stock price crash risk. Using Chinese IPO roadshow videos and machine learning techniques, we introduce a novel measure of emotional stability and find that firms led by emotionally stable executives have lower crash risk. Furthermore, we show that the effect is driven by stability of negative emotions, the effect is stronger when executives are under greater pressure, and emotionally stable executives refrain from bad news hoarding by using less positive tone in annual reports. Overall, we extend the literature on the determinants of crash risk from a psychological trait perspective.

Suggested Citation

  • Guo, Jintong & Cheng, Xiyun & Zhang, Ziyi & Ding, Rui, 2024. "Keep calm and carry on: Do emotionally stable executives reduce stock price crash risk?," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013059
    DOI: 10.1016/j.frl.2024.106276
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    More about this item

    Keywords

    Emotional stability; Stock price crash risk; Machine learning; IPO roadshow video;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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