Nonlinear effect of CEO tenure on stock price crash risk

Nikeel Nishkar Kumar · Rajesh Mohnot

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Corporate Finance and Governance Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

This study investigates the nonlinear relationship between CEO tenure and stock price crash risk. Using data from publicly listed U.S. firms over the period from 2000 – 2022, we report an inverted U-shaped association between CEO tenure and stock price crash risk. Specifically, managers in their early tenure appear to hoard bad news up to a threshold. After this threshold, managers appear to engage in less bad news-hoarding behavior. The threshold value of CEO tenure is attenuated by director stock ownership and lower litigation risk. The results underscore the need for monitoring early career CEOs given the nonlinear association.

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References

2006Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2005Performance matched discretionary accrual measures 2003Corporate Governance and Equity Prices 2003Enjoying the Quiet Life? Corporate Governance and Managerial Preferences 2012Endogeneity and the dynamics of internal corporate governance 2005R2 around the world: New theory and new tests☆2000Conditional Skewness in Asset Pricing Tests 2009Opaque financial reports, R2, and crash risk☆

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