Do executives have fixed-effects on firm-level stock price crash/jump risk? Evidence from CEOs and CFOs.

Abstract

This paper investigates whether individual CEOs and CFOs have "styles" (i.e. managers' fixed- effects) when it comes to withholding bad and good corporate news, which is captured using the firm-level future stock price crash and jump risk. Tracking managers that move across firms and employing a manager fixed effect model, we find that both CEOs and CFOs have fixed-effects on firm-level future stock price crash and jump risk, using multiple crash (jump) risk measures adopted from previous studies (for example, Kim et al. 2011a,b). Such effects are subjected to a battery of robustness tests, including using a placebo data. In addition, we document that besides bad news withholding channels suggested in the existing literature (e.g. earnings management, management guidance, and tax avoidance), managers have fixed-effects on "other channels" of news withholding, which is measured parsimoniously using a crash risk residual. We also find that CEOs have stronger fixed-effects than CFOs in affecting firm-level stock price crash and jump risk. Lastly, we find that certain demographic characteristics, including past professional qualifications (CPA license), educational background (MBA and JD degree), past military experience, and family status are associated with the crash and jump risk of the firm.