CEO equity incentive duration and expected crash risk

IF 5.5 3区管理学 Q1 BUSINESS, FINANCE

British Accounting Review Pub Date : 2024-11-01 DOI:10.1016/j.bar.2023.101265

Zhenjiang Gu , Louise Yi Lu , Yangxin Yu

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Abstract

This study examines the effect of CEO equity incentive duration on firm-specific ex ante crash risk. Using a measure that explicitly accounts for the length of stock and option grant vesting terms (Gopalan et al., 2014), we find that longer CEO equity incentive duration reduces investors' perceived crash risk, gauged by the steepness of option implied volatility smirk. This finding holds for alternative measures of duration that account for endogeneity, alternative regression specification with lagged independent variables and using an instrumental variable approach. We further find that this negative relation is more salient for firms whose CEOs have a higher level of career concerns and for firms with weaker external monitoring. Additional tests point to financial reporting obfuscation and over-investment as two possible channels through which the duration–crash risk relation operates. Overall, our results suggest that lengthening CEO equity incentive duration discourages managers from bad news hoarding and continuing negative NPV projects, which reduces a firm's expected crash risk.

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首席执行官股权激励期限和预期崩盘风险

本研究探讨了首席执行官股权激励期限对特定公司事前崩盘风险的影响。使用明确考虑股票和期权授予归属条款长度的衡量方法（Gopalan 等人，2014 年），我们发现较长的首席执行官股权激励持续时间会降低投资者感知的崩盘风险，该风险通过期权隐含波动率的陡峭程度来衡量。这一发现在考虑内生性的其他期限衡量方法、使用滞后自变量的其他回归规范以及使用工具变量方法时都是成立的。我们进一步发现，这种负相关关系对于首席执行官职业担忧程度较高的公司和外部监控较弱的公司更为突出。其他测试表明，财务报告混淆和过度投资是持续时间与崩溃风险关系发挥作用的两个可能渠道。总之，我们的研究结果表明，延长首席执行官股权激励的持续时间可以阻止经理人囤积坏消息和继续实施负净现值项目，从而降低公司的预期崩溃风险。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

British Accounting Review BUSINESS, FINANCE-

CiteScore

8.60

自引率

3.90%

发文量

审稿时长

76 days

期刊介绍： The British Accounting Review*is pleased to publish original scholarly papers across the whole spectrum of accounting and finance. The journal is eclectic and pluralistic and contributions are welcomed across a wide range of research methodologies (e.g. analytical, archival, experimental, survey and qualitative case methods) and topics (e.g. financial accounting, management accounting, finance and financial management, auditing, public sector accounting, social and environmental accounting; accounting education and accounting history), evidence from UK and non-UK sources are equally acceptable.