Equity Incentives, Disclosure Quality, and Stock Liquidity Risk
Charles A. Dice Center Working Paper No. 2017-02
64 Pages Posted: 25 Jan 2017 Last revised: 1 Mar 2017
Date Written: February 27, 2017
We provide evidence that CEO equity incentives, especially stock options, influence stock liquidity risk via information disclosure quality. We document a negative association between CEO options and the quality of future managerial disclosure policy. Contributing to the literature on CEO risk-taking, we document a positive association between CEO options and future systematic stock liquidity risk. Controlling for endogeneity, we show that information disclosure quality is an important channel through which CEO options influence stock liquidity risk. Results are robust to various controls for endogeneity and to the use of numerous disclosure quality and stock liquidity risk measures.
Keywords: CEO Compensation, CEO Incentives, CEO Stock Options, Liquidity Risk, Liquidity Beta, Liquidity Commonality, Systematic Liquidity Risk, Idiosyncratic Risk, Risk-Taking Incentives, Hedging, Managerial Risk-Taking Incentives, Managerial Hedging
JEL Classification: D22, G12, G32, G34, J33, J41, O31
Suggested Citation: Suggested Citation