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Which institutions impose more sanctions? Formal vs. informal CEO non-duality institutions and stock price crash risk of CEO duality firms

Author

Listed:
  • Zhang, Tingting
  • Kim, Incheol
  • Gracy Yang, Jingyu
  • Zhang, Zhengyi

Abstract

While prior research has emphasized the institutional alignment of firms, limited attention has been paid to the different penalties firms face when they deviate from legitimate governance practices prescribed by formal versus informal institutions. Drawing on institutional theory and agency theory, this study investigates the influence of CEO duality on firm-specific downside risk, measured by stock price crash risk, under formal versus informal institutional contexts that favor CEO non-duality. Analyzing 48,521 firm-year observations from 28 economies between 1999 and 2014, we find that firms with CEO duality experience significantly higher levels of stock price crash risk under formal institutional contexts than informal ones. We also find that CEO duality firms can reconcile efficiency and institutional logics by appointing more outside directors. This hybrid governance structure proves more effective in mitigating the firms’ stock price crash risk under formal institutional contexts than informal ones.

Suggested Citation

  • Zhang, Tingting & Kim, Incheol & Gracy Yang, Jingyu & Zhang, Zhengyi, 2025. "Which institutions impose more sanctions? Formal vs. informal CEO non-duality institutions and stock price crash risk of CEO duality firms," Journal of Business Research, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:jbrese:v:199:y:2025:i:c:s0148296325003078
    DOI: 10.1016/j.jbusres.2025.115484
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