Generalist CEOs and stock price crash risk

Fang, Xiaohua; Girardone, Claudia; Li, Yiwei; Zeng, Yeqin

Abstract

We investigate whether generalist chief executive officers (CEOs), that is, 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 coefficient stability test. Supporting our conjecture, we find a negative relation between CEOs’ general ability index (GAI) and future stock price crash risk. The effect of CEOs’ GAI 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.

Citation

Fang, X., Girardone, C., Li, Y., & Zeng, Y. (2024). Generalist CEOs and stock price crash risk. Journal of Business Finance and Accounting, https://doi.org/10.1111/jbfa.12804

• Journal Article Type: Article
• Acceptance Date: Apr 1, 2024
• Online Publication Date: May 3, 2024
• Publication Date: May 3, 2024
• Deposit Date: Apr 12, 2024
• Publicly Available Date: May 13, 2024
• Journal: Journal of Business Finance and Accounting
• Print ISSN: 0306-686X
• Electronic ISSN: 1468-5957
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/jbfa.12804
• Keywords: bad news hoarding, career concerns, general managerial skills, chief executive officers, tolerance for failure, crash risk
• Public URL: https://durham-repository.worktribe.com/output/2382929