Generalist CEOs and Stock Price Crash Risk

Journal of Business Finance and Accounting, Forthcoming

Posted: 1 May 2024

See all articles by Xiaohua Fang

Xiaohua Fang

Florida Atlantic University

Claudia Girardone

Essex Business School - University of Essex

Yiwei Li

University of Essex, EBS

Yeqin Zeng

Durham University Business School, Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 26, 2024

Abstract

We investigate whether generalist chief executive officers (CEOs), i.e., CEOs who gain transferable skills across firms and industries, have less incentive to hoard bad news. To address endogeneity concerns stemming from firm–CEO matching, we deploy a difference-in-differences method utilizing exogenous CEO turnovers, propensity score matching and entropy balancing matching methods, and Oster’s (2019) coefficient stability test. Supporting our conjecture, we find a negative relation between CEOs’ general ability index and future stock price crash risk. The effect of CEOs’ general ability index on crash risk is stronger when labor demand is stronger and when firms have more agency conflicts. Our analysis further suggests that generalist CEOs attenuate crash risk by increasing conditional accounting conservatism and reducing real earnings management. Taken together, our findings highlight the role of CEOs’ general human capital in increasing their tolerance for failure and mitigating the agency problem.

Keywords: General managerial skills; CEOs; bad news hoarding; crash risk, tolerance for failure; career concerns

JEL Classification: G12; G32; G34; J24

Suggested Citation

Fang, Xiaohua and Girardone, Claudia and Li, Yiwei and Zeng, Yeqin, Generalist CEOs and Stock Price Crash Risk (April 26, 2024). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4808754

Xiaohua Fang

Florida Atlantic University ( email )

United States

Claudia Girardone

Essex Business School - University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

Yiwei Li

University of Essex, EBS ( email )

University of Essex Wivenhoe Park
Essex business school
Colchester, CO4 3SQ
United Kingdom

Yeqin Zeng (Contact Author)

Durham University Business School, Finance and Economics ( email )

Office 162 Durham University Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

HOME PAGE: http://https://sites.google.com/site/yeqinzenghomepage/

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