CEO Age and Stock Price Crash Risk
Forthcoming in Review of Finance
Posted: 12 Sep 2016 Last revised: 7 Nov 2016
Date Written: August 27, 2015
We show that firms with younger CEOs are more likely to experience stock-price crashes, including crashes caused by revelation of negative news in the form of breaks in strings of consecutive earnings increases. Such strings are accompanied by large increases in CEO compensation that do not dissipate with stock-price crashes. These findings suggest that CEOs have financial incentives to hoard bad news earlier in their career, which increases future stock-price crashes. This negative impact of CEO age effect is strongest in the presence of managerial discretion. Overall, the findings highlight the importance of CEO age for firm policies and outcomes.
Keywords: CEO Age, Crash Risk, Agency Theory, Managerial Discretion
JEL Classification: G00, G02
Suggested Citation: Suggested Citation