Top managerial power and stock price efficiency: Evidence from China

Using higher top managerial ownership, occurrence of CEO duality, and lower ownership of the controlling shareholder to proxy for higher top managerial power in China's A-shares, we find firms with higher top managerial power have higher stock price delay after controlling for liquidity and investor attention variables. Moreover, top managerial ownership of SOE firms exhibits a lower influence on stock price delay than top managerial ownership of non-SOE firms, suggesting top managers' promotion incentive in SOE firms has the opposite effect to their equity incentive on stock price efficiency. Furthermore, our findings show that firms with higher top managerial power component of stock price delay exhibit lower quality of accruals, spend more time to release financial reports, and have higher chances of financial misconduct and that accounting quality measures associated with top managerial power significantly explain stock price delay, indicating top managerial power influences stock price efficiency through the accounting quality channel. Finally, our evidence shows that the Split-Share Structure Reform initiated in 2005 increases the influences of both top managerial ownership and ownership of the controlling shareholder on stock price delay and suggests that the anti-corruption campaign launched in 2012 restricts financial manipulations from top managers whereas decreases the incentives of the controlling shareholder to monitor top managers.