Do Executives Have Fixed Effects on Firm-Level Stock Price Crash Risk?

Abstract

This paper investigates whether individual CEOs and CFOs have “styles” (i.e. manager’s fixed effects) in withholding corporate bad news, which is captured using firm-level future stock price crash risks. Tracking managers that move across firms and employing a manager fixed-effect model, I find that both CFOs and CEOs have fixed effects on firm-level stock price crash risks in the future using multiple crash risk measures adopted from previous studies (e.g. Kim et al.(2011a,b)). In addition, I find that CFOs’ managerial ability is positively associated with one crash risk measure. Lastly, I find systematic differences in CEO vis-à-vis CFO’s preferences in exploiting voluntary disclosure, earnings management, tax avoidance and other channels to withhold bad (good) news which generates crash risks. And these preferences vary in accordance with managerial ability, age cohort group and gender of managers