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From alignment to crash: How CFO co-option affects stock prices

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Listed:
  • Liu, Wenqiong
  • Yeh, Chih-Chuan
  • Zhang, Lingyu
  • Huang, Ho-Chuan

Abstract

This study examines how CFO co-option affects stock price crash risk in Chinese listed companies. Using data from 2000 to 2022, we find that co-opted CFOs significantly increase the likelihood of stock price crashes. This effect is more pronounced in firms with higher financial constraints and weaker in firms operating in more competitive markets. Excessive or high-risk investments by co-opted CFOs drive this risk. The findings underscore the importance of CFO independence in corporate governance to reduce financial instability and protect shareholder value. This research highlights the critical role of CFO co-option in firm risk and calls for stronger oversight mechanisms.

Suggested Citation

  • Liu, Wenqiong & Yeh, Chih-Chuan & Zhang, Lingyu & Huang, Ho-Chuan, 2025. "From alignment to crash: How CFO co-option affects stock prices," Finance Research Letters, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:finlet:v:82:y:2025:i:c:s1544612325008451
    DOI: 10.1016/j.frl.2025.107586
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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