Tournament Incentives and Stock Price Crash Risk

2018 ◽  
Vol 32 (3) ◽  
pp. 101-121 ◽  
Author(s):  
Ning Jia
Keyword(s):  
Stock Price ◽  
Crash Risk ◽  
Senior Executives ◽  
Public Firms ◽  
Scheme Design ◽  
External Monitoring ◽  
Paper Advance ◽  
Corporate Governance Quality ◽  
The Relationship ◽  
Robust Evidence

SYNOPSIS Using a large sample of U.S. public firms, I provide robust evidence that promotion-based tournament incentives, which are measured as the pay gaps between the CEO and other senior executives, are significantly and positively related to the firm's future stock price crash risk. The documented relationship is robust to controlling for corporate governance quality, and is attenuated for firms with a recent CEO turnover and for firms with more effective external monitoring. In contrast, the relationship is accentuated for firms that experience consecutive underperformance and for firms with greater opacity. Findings of this paper advance our understanding of the benefits and downsides of promotion incentives for non-CEO executives, and highlight the implications of inter-executive incentive scheme design for firm-specific stock price crash risk. JEL Classifications: G34; G12; G30.

Capital Market Consequences of Audit Office Size: Evidence from Stock Price Crash Risk

2020 ◽  
Vol 39 (2) ◽  
pp. 1-26
Author(s):  
Jeffrey L. Callen ◽  
Xiaohua Fang ◽  
Baohua Xin ◽  
Wenjun Zhang
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Bad News ◽  
Crash Risk ◽  
Public Firms ◽  
Big 4 ◽  
Empirical Tests ◽  
Office Size ◽  
Market Consequences ◽  
Robust Evidence

SUMMARY This study examines the association between the office size of engagement auditors and their clients' future stock price crash risk, a consequence of managerial bad news hoarding. Using a sample of U.S. public firms with Big 4 auditors, we find robust evidence that local audit office size is significantly and negatively related to future stock price crash risk. The evidence is consistent with the view that large audit offices effectively detect and deter bad news hoarding activities in comparison with their smaller counterparts. We further explore two possible explanations for these findings, the Auditor Incentive Channel and the Auditor Competency Channel. Our empirical tests offer support for both channels. JEL Classifications: G12; G34; M49.

Political connections and stock price crash risk

2018 ◽  
Vol 8 (2) ◽  
pp. 140-157 ◽  
Author(s):  
Guoliu Hu ◽  
Yu Wang
Keyword(s):  
Local Governments ◽  
Stock Price ◽  
Political Connections ◽  
Crash Risk ◽  
Corporate Disclosure ◽  
Senior Executives ◽  
Content Type ◽  
The Impact ◽  
First Time ◽  
The Relationship

Purpose The purpose of this paper is to research the impact of firms’ political connections on the stock price crash risk. Design/methodology/approach Empirical methodology is used in this study. Findings Using a large sample of Chinese firms for the period 2008-2013, the authors find that corporate political connections can reduce the stock price crash risk. When managers are still in politics or firms are in high financial transparency of local governments, the relationship between political connections and the stock price crash risk is weakened. In addition, the authors’ research shows that the corporate political connections influence the stock price crash risk by affecting the speed of confirmation of bad news. Research limitations/implications The findings in this study suggest that political connections will affect corporate disclosure. Practical implications These results can help senior executives and investors make better decisions to prevent the stock price crash risk. Originality/value This paper empirically analyzes the impact of different types of political connections on the stock price crash risk for the first time.

scholarly journals ESG Disclosures and Stock Price Crash Risk

2021 ◽  
Vol 14 (2) ◽  
pp. 70 ◽  
Author(s):  
Rio Murata ◽  
Shigeyuki Hamori
Keyword(s):  
Dynamic Model ◽  
Stock Price ◽  
The United States ◽  
Crash Risk ◽  
Firm Level ◽  
Market Participants ◽  
Major Market ◽  
Market Index ◽  
Index Components ◽  
The Relationship

In this study, we investigate the relationship between environmental, social, and governance (ESG) disclosures and stock price crash risk. A stock price crash is a dreadful event for market participants. Thus, exploring stock price crash determinants is helpful for investment decisions and risk management. In this study, we use samples of major market index components in Europe, the United States, and Japan to perform regression analyses, after controlling for other potential stock price crash determinants. We estimate static two-way fixed-effect models and dynamic GMM models. We find that coefficients of firm-level ESG disclosures are not statistically significant in the static model. ESG disclosure coefficients in the dynamic model are not statistically significant in the U.S. market sample. On the other hand, coefficients of ESG disclosure scores in the dynamic model are statistically significant and negative in the European and Japanese marker sample. Our findings suggest that ESG disclosures lower future stock price crash risk; however, the effect and predictive power of ESG disclosures differ among regions.

scholarly journals Management equity incentives and stock price crash risk: “Golden handcuffs” or “gold watch”

PLoS ONE ◽  
2021 ◽  
Vol 16 (4) ◽  
pp. e0249900
Author(s):  
Xiaohua Zhou ◽  
Jinshi Wan ◽  
Yi Yang ◽  
Xiangyu Gan
Keyword(s):  
Peer Effects ◽  
Stock Price ◽  
Listed Companies ◽  
Mediation Effect ◽  
Crash Risk ◽  
Mediating Effects ◽  
Equity Incentives ◽  
Region 10 ◽  
The Relationship ◽  
A Share

This paper expands the previous research on management equity incentives (MEIs) and stock price crash risk by distinguishing between the "gold watch" region and the "golden handcuff" regions in MEIs. By using an estimation of the gold watch region and the golden handcuff regions based on 6,675 annual observations of China’s A-share listed companies, the stock price crash risk is found to be negatively correlated with MEIs in the golden handcuff regions (0–10%, 30%-100%) and is positively correlated with MEIs in the gold watch region (10%-30%). A further investigation of the mediating effects of peer effects on MEIs and the stock price crash risk reveals that peer effects have a partial mediation effect at the level of peer managers’ shareholding and mediate the relationship between MEIs and the stock price crash risk.

Do Firms Redact Information from Material Contracts to Conceal Bad News?

2021 ◽  
Author(s):  
Dichu Bao ◽  
Yongtae Kim ◽  
Lixin (Nancy) Su
Keyword(s):  
Stock Price ◽  
Positive Association ◽  
Securities And Exchange Commission ◽  
Bad News ◽  
Crash Risk ◽  
Public Disclosure ◽  
Litigation Risk ◽  
External Monitoring ◽  
Future Performance ◽  
Equity Incentives

The Securities and Exchange Commission (SEC) allows firms to redact information from material contracts by submitting confidential treatment requests, if redacted information is not material and would cause competitive harm upon public disclosure. This study examines whether managers use confidential treatment requests to conceal bad news. We show that confidential treatment requests are positively associated with residual short interest, a proxy for managers’ private negative information. This positive association is more pronounced for firms with lower litigation risk, higher executive equity incentives, and lower external monitoring. Confidential treatment requests filed by firms with higher residual short interests are associated with higher stock price crash risk and poorer future performance. Collectively, our results suggest that managers redact information from material contracts to conceal bad news.

LOCAL INSTITUTIONAL ENVIRONMENT AND STOCK PRICE CRASH RISK: EVIDENCE FROM CHINA

2020 ◽  
pp. 1-22
Author(s):  
XIAOJIAN TANG ◽  
STEPHANIE TSUI ◽  
KUANG-TA LO
Keyword(s):  
Stock Market ◽  
Stock Price ◽  
Institutional Environment ◽  
Crash Risk ◽  
Level Data ◽  
The Relationship ◽  
Privately Owned ◽  
Province Level

Based on province-level data on China’s local institutional environment from 2008 to 2014, we explore the relationship between the local institutional environment and stock price crash risk. We find that a stronger local institutional environment curbs stock price crash risk. Furthermore, we explore the relationship between local institutional environment and stock price crash risk for state-owned versus privately owned enterprises. We find that a stronger local institutional environment is more likely to curb stock price crash risk in state-owned enterprises than in privately owned enterprises. Our results are robust to additional tests. These findings suggest that it is necessary to accelerate the progress of local marketization in China to ensure the development of the stock market and a strong economy.

scholarly journals The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

2019 ◽  
Author(s):  
Xi Fu ◽  
Xiaoxi Wu ◽  
Zhifang Zhang
Keyword(s):  
Stock Price ◽  
Predictive Power ◽  
Crash Risk ◽  
Conference Calls ◽  
Conference Call ◽  
Public Firms ◽  
Equity Incentives ◽  
Disclosure Tone

Abstract This paper investigates whether and how the disclosure tone of earnings conference calls predicts future stock price crash risk. Using US public firms’ conference call transcripts from 2010 to 2015, we find that firms with less optimistic tone of year-end conference calls experience higher stock price crash risk in the following year. Additional analyses reveal that the predictive power of tone is more pronounced among firms with better information environment and lower managerial equity incentives, suggesting that extrinsic motivations for truthful disclosure partially explain the predictive power of conference call tone. Our results shed light on the long-term information role of conference call tone by exploring the setting of extreme future downside risk, when managers have conflicting incentives either to unethically manipulate disclosure tone to hide bad news or to engage in ethical and truthful communication.

Foreign Investors, External Monitoring, and Stock Price Crash Risk

2019 ◽  
Vol 35 (4) ◽  
pp. 829-853
Author(s):  
Jeong-Bon Kim ◽  
Xiaoxi Li ◽  
Yan Luo ◽  
Kemin Wang
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Reporting Quality ◽  
Crash Risk ◽  
Accrual Quality ◽  
Foreign Investors ◽  
External Monitoring ◽  
Risk Reducing ◽  
Local Firms

We investigate whether foreign investors help to reduce local firms’ future stock price crash risk through their external monitoring. We find that the entrance of foreign investors is associated with a significant reduction in local firms’ future crash risk. Further investigation reveals that foreign investors help to improve local firms’ financial reporting quality from the perspectives of accrual quality, conservatism, and annual report tone management. The evidence is consistent with our conjecture that foreign investors play an important external monitoring role, which reduces managerial bad-news hoarding and thereby lowers local firms’ future crash risk. We also find that the crash risk–reducing role of foreign investors is more pronounced when foreign investors are more familiar with the institutional background of the host country, when they have stronger incentives to monitor local firms, and when local firms have higher governance efficacy. A variety of robustness checks reveals that our results are unlikely to be driven by potential endogeneity.

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