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The impact of CEO pay and its disclosure on stock price crash risk: evidence from China

Author

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  • Jiahua Xu
  • Lan Zou

Abstract

Purpose - The purpose of this paper is to investigate whether CEO pay is related to stock price crash risk, and how ownership concentration mediates this relationship. Design/methodology/approach - The authors hypothesize that companies who disclose CEO pay would experience lower stock price crash risk than their non-transparent peers. For companies whose CEO pay is published, the authors conjecture that the CEO pay slice is positively related to stock price crash risk. The authors also investigate whether the impact of CEO pay on crash risk would be weaker or stronger under a concentrated ownership structure and a mutual fund ownership structure. This study relies on 14,499 firm-year observations from the Chinese capital market to shed light on these questions. Findings - The authors demonstrate that the magnitude of CEO pay slice has little effect on stock price crash risk. However, whether CEO pay is disclosed at all is a strong indicator for stock price crash risk. Originality/value - The paper expands on the literature by adding a new factor to explain the stock price crash risk, which is vital to investor protection and the stability of the financial market. The research also adds to the sparse literature on CEO centrality and has implications for corporate governance and public policy.

Suggested Citation

  • Jiahua Xu & Lan Zou, 2019. "The impact of CEO pay and its disclosure on stock price crash risk: evidence from China," China Finance Review International, Emerald Group Publishing Limited, vol. 9(4), pages 479-497, July.
    • Handle: RePEc:eme:cfripp:cfri-10-2018-0138
    DOI: 10.1108/CFRI-10-2018-0138
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    Citations

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    Cited by:

    1. Jung, Hail & Song, Chang-Keun, 2023. "Managerial perspectives on climate change and stock price crash risk," Finance Research Letters, Elsevier, vol. 51(C).
    2. Hu, Gang & Liu, Yiye & Wang, Jacqueline Wenjie & Zhou, Gaoguang & Zhu, Xindong, 2022. "Insider ownership and stock price crash risk around the globe," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    3. Chen, Lingling & Zhang, Chaolin, 2024. "External pay gap of R&D personnel and total factor productivity of enterprises," Finance Research Letters, Elsevier, vol. 62(PA).
    4. Jia, Fansheng & Li, Guangzhong & Lu, Xiaoyan & Xie, Sujuan, 2021. "CEO given names and corporate green investment," Emerging Markets Review, Elsevier, vol. 48(C).
    5. Wu, Yihan & Dong, Bin, 2021. "The value of independent directors: Evidence from China," Emerging Markets Review, Elsevier, vol. 49(C).
    6. Kong, Dongmin & Zhu, Ling & Wang, Xin, 2022. "Anti-corruption and CEO compensation: Evidence from a natural experiment in China," Economic Modelling, Elsevier, vol. 106(C).
    7. Huang, Yichu & Fan, Yaoyao, 2022. "Risk along the supply chain: Geographic proximity and corporate risk taking," Finance Research Letters, Elsevier, vol. 50(C).
    8. Li, Jie & Zhou, Zhong-Qiang & Zhang, Yongjie & Xiong, Xiong, 2023. "Information interaction among institutional investors and stock price crash risk based on multiplex networks," International Review of Financial Analysis, Elsevier, vol. 89(C).
    9. Chang, Jeffery (Jinfan) & Meng, Qingbin & Ni, Xiaoran, 2022. "A tale of riskiness: The real effects of share pledging on the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    10. Li, Ziyang & Han, Ning & Zeng, Qing & Li, Yu, 2022. "Executive team heterogeneity, equity pledges, and stock Price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 84(C).
    11. Huang, Wenxuan & Xu, Weidong & Gao, Xin & Li, Donghui & Fu, Wentao, 2023. "Terrorist attacks and CEO compensation: UK evidence," Research in International Business and Finance, Elsevier, vol. 64(C).
    12. Fan, Ruixin & Xiong, Xiong & Gao, Ya, 2021. "Can the probability of extreme returns be the basis for profitable portfolios? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 76(C).
    13. Qingchong Chen & Xiong Xiong & Ya Gao, 2021. "Is information really efficient for the market? Evidence of confirmatory bias in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(5), pages 5965-5997, December.
    14. Yang, Chang & Chen, Xin & Chen, Xian, 2021. "Vertical interlock and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    15. Yang, Zhiqing & Liu, Xiaowen, 2022. "The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry," Finance Research Letters, Elsevier, vol. 50(C).
    16. Can Huang & Yuqiang Cao & Meiting Lu & Yaowen Shan & Yizhou Zhang, 2023. "Messages in online stock forums and stock price synchronicity: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3011-3041, September.
    17. Gao, Ya & Han, Xing & Xiong, Xiong, 2021. "Loss from the chasing of MAX stocks: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).

    More about this item

    Keywords

    Ownership concentration; Crash risk; CEO pay; Mutual fund ownership; C12; D22; M12;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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