From Alignment to Crash: How Cfo Co-Option Affects Stock Prices

Abstract

This study examines how CFO co-option affects stock price crash risk in Chinese listed companies. Using data from 2000 to 2022, we find that co-opted CFOs significantly raise the likelihood of stock price crashes, especially in firms with high financial constraints or less competitive markets. Excessive investments by co-opted CFOs drive this risk. The findings underscore the importance of CFO independence in corporate governance to reduce financial instability and protect shareholder value. This research highlights the critical role of CFO co-option in firm risk and calls for stronger oversight mechanisms.

Keywords: crash risk, CEO, CFO, Co-option