CEO Age and Stock Price Crash Risk

Forthcoming in Review of Finance

Posted: 12 Sep 2016 Last revised: 7 Nov 2016

See all articles by Panayiotis C. Andreou

Panayiotis C. Andreou

Cyprus University of Technology

Christodoulos Louca

Cyprus University of Technology

Andreas Petrou

Cyprus University of Technology

Date Written: August 27, 2015

Abstract

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

Andreou, Panayiotis C. and Louca, Christodoulos and Petrou, Andreas, CEO Age and Stock Price Crash Risk (August 27, 2015). Forthcoming in Review of Finance. Available at SSRN: https://ssrn.com/abstract=2837200

Panayiotis C. Andreou (Contact Author)

Cyprus University of Technology ( email )

School Of Management and Economics
P.O. Box 50329
Lemesos, 3036
Cyprus

HOME PAGE: http://www.pandreou.com

Christodoulos Louca

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

Andreas Petrou

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

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