Industry Tournament Incentives and Stock Price Crash Risk
Financial Management, Forthcoming
42 Pages Posted: 2 Oct 2020
Date Written: June 29, 2020
Theoretical and empirical studies argue that managerial hoarding of negative firm-specific information can result in large negative stock price corrections once the accumulated information is revealed. A managerial labor market with tournament-like progression provides managers with the incentive to withhold negative information. We find that CEOs with stronger incentives to progress in the managerial labor market tournament have significantly greater stock price crash risk, consistent with a greater propensity for these executives to withhold negative firm-specific information. The empirical patterns that we document suggest a negative externality to the positive incentive effects provided by the managerial labor market.
Keywords: CEOs, Disclosure, Executive Compensation, Tournament Incentives, Stock Price Crash Risk
JEL Classification: J33, D89, G10, M52
Suggested Citation: Suggested Citation