The Effect of CEO Power on the Informativeness of Stock Prices: An Empirical Note

13 Pages Posted: 28 Jan 2015

See all articles by Pradit Withisuphakorn

Pradit Withisuphakorn

National Institute of Development Administration (NIDA)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: January 26, 2015

Abstract

Motivated by agency theory, we explore how powerful CEOs influence the extent of stock price informativeness. Using idiosyncratic volatility to measure stock price informativeness, we find that firms with more powerful CEOs experience a more opaque information environment. This is consistent with the notion that more powerful CEOs tend to be more entrenched and are more likely to take actions that do not maximize shareholders’ wealth. To conceal their opportunistic actions, they are less likely to disclose information, resulting in more information asymmetry and therefore lower stock price informativeness. Our additional results based on propensity score matching also confirm the conclusion.

Keywords: CEO power, stock price informativeness, information asymmetry, agency theory, agency conflict

JEL Classification: G32, G34

Suggested Citation

Withisuphakorn, Pradit and Jiraporn, Pornsit, The Effect of CEO Power on the Informativeness of Stock Prices: An Empirical Note (January 26, 2015). Available at SSRN: https://ssrn.com/abstract=2555864 or http://dx.doi.org/10.2139/ssrn.2555864

Pradit Withisuphakorn

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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