CEO Early-Life Disaster Experience and Stock Price Crash Risk

61 Pages Posted: 31 Jul 2019 Last revised: 9 Aug 2019

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong College of Business

Qingliang Fan

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Xin Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Leon Zolotoy

University of Melbourne - Melbourne Business School

Date Written: July 28, 2019

Abstract

Prior literature shows that experiences of traumatic events have long-lasting effects on individuals’ risk attitudes. Integrating these insights with the research examining formation of stock price crashes, we study the impact of CEOs’ early-life natural disaster experiences on stock price crash risk. We document that stocks of the firms led by CEOs with early-life natural disaster experiences have higher crash risk. The documented effect of CEO disaster experience is amplified for CEOs with high equity risk-taking incentives and CEOs serving as the chairman of the board. Further evidence suggests that CEOs with early-life disaster experience, on average, show greater tendency to hoard bad news. Additional analysis reveals a non-monotone relation between the severity of CEO disaster experience and crash risk. Collectively, our findings are consistent with the notion that early-life disaster experience impacts a CEO’s subjective assessment of risks associated with bad news hoarding, engendering formation of stock price crashes.

Keywords: CEO early-life disaster experience; Stock price crash risk; Bad news hoarding

JEL Classification: G12; G14; G40

Suggested Citation

Chen, Yangyang and Fan, Qingliang and Yang, Xin and Zolotoy, Leon, CEO Early-Life Disaster Experience and Stock Price Crash Risk (July 28, 2019). Available at SSRN: https://ssrn.com/abstract=3427936 or http://dx.doi.org/10.2139/ssrn.3427936

Yangyang Chen (Contact Author)

City University of Hong Kong College of Business ( email )

Tat Chee Avenue, Kowloon, Hong Kong SAR
Hong Kong
China

Qingliang Fan

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 312, Economics Building
Xiamen, Fujian 361005
China

HOME PAGE: http://michaelqfan.weebly.com

Xin Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Leon Zolotoy

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

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