CFOs versus CEOs: Equity Incentives and Crashes

By Jeong‐Bon Kim, Yinghua Li, Liandong Zhang. 2011

1,072 citations recorded by the source corpus.

Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer's (CFO) option portfolio value to stock price is significantly and positively related to the firm's future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/642afdf6c033873ae343d5e305e2227c110d3f10

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Citations in the corpus

CEO Overconfidence and Stock Price Crash Risk (2016, positive): “Following Kim et al. (2011b), we also calculate the three crash risk measures using firm-specific weekly returns over the future two- and three-year periods and find that the relation between CEO overconfidence and future crash risk continues to be positive and significant.”
Abnormal real operations, real earnings management, and subsequent crashes in stock prices (2014, positive): “The notion that negative information hiding leads to price crashes is also consistent with findings in other important crash risk studies (e.g. Kim et al. 2011a, b; Kim and Zhang 2014).”
CEO age and stock price crash risk (2017, methodology): “In addition, consistent with Kim et al. (2011a), in-the-money options increase the probability of crashes (p<0.01), indicating that stock options can motivate managers to hide bad news to increase stock option benefits.”
Retail investor attention and stock price crash risk: Evidence from China (2019, neutral): “Relevant studies employ tax avoidance and option incentives (Kim et al., 2011a; 2011b), accounting robustness (Kim and Zhang, 2016) and other firmspecific reasons to investigate the determinants of crash risk.”
Corporate Social Responsibility and Stock Price Crash Risk (2014, background): “…empirical evidence suggests that opaque financial reporting, corporate tax avoidance, and executive equity incentives are positively associated with firm-specific crash risk, while accounting conservatism reduces such risk (Hutton et al., 2009; Kim et al., 2011a and 2011b; Kim and Zhang, 2013).”
Seeing is believing? Executives' facial trustworthiness, auditor tenure, and audit fees (2020, neutral): “19 Our finding that auditors charge a lower audit fee to trustworthy-looking CFOs also highlights the crucial role of CFOs in financial reporting, which has beenwell documented in prior literature (Aier et al., 2005; Chava and Purnanandam, 2010; Ham et al., 2017; Jiang et al., 2010; Kim et al., 2011”