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Nonlinear effect of CEO tenure on stock price crash risk

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  • Kumar, Nikeel Nishkar
  • Mohnot, Rajesh

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.

Suggested Citation

  • Kumar, Nikeel Nishkar & Mohnot, Rajesh, 2024. "Nonlinear effect of CEO tenure on stock price crash risk," Finance Research Letters, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finlet:v:68:y:2024:i:c:s1544612324009991
    DOI: 10.1016/j.frl.2024.105969
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    More about this item

    Keywords

    Ceo tenure; Director stock ownership; Litigation risk; Nonlinearity; tail risk;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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