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Asian Review of Financial Research Vol.34 No.3 pp.1-23
Exploring Nonlinear Effects of CEO Power on Stock Price Crash Risk
Chaehyun Kim Senior Researcher, School of Business and Technology Management, Korea Advanced Institute of Science and Technology (KAIST)
Key Words : CEO power,Pay gap,Stock price crash risk,Nonlinear effects,Agency problems


This study investigates the role of powerful CEOs on future stock price crashes. Our results reveal an inverted U-shaped relationship between CEO power and stock price crash risk. Specifically, powerful CEOs tend to conceal more negative news, increasing stock price crash risk, which indicates the presence of incentives to take private benefits. However, extremely powerful CEOs decrease stock price crash risk, suggesting that sufficient entrenchment may mitigate further private benefits from concealing negative news. Additionally, the nonlinear relationship is observed only in competitive industries. This fact implies that strong external monitoring mitigates CEOs' incentives to pursue private benefits, but raises extremely powerful CEOs' career concerns, which encourages them to conceal more negative news.
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