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Managerial ability and stock price crash risk

Author

Listed:
  • Huijie Cui
  • Chong Chen
  • Yanan Zhang
  • Xiji Zhu

Abstract

This study examines the impact of managerial ability on firms’ stock price crash risk. Using a large sample of U.S. firms, we find that high-ability managers are associated with a higher likelihood of future crashes. The positive relation is more pronounced when managers have larger career concerns, possess better knowledge of operational information and engage in more risk-taking activities. In addition, we show that bad news hoarding and overinvestment are two possible channels through which managerial ability increases crash risk. Overall, our findings indicate that managerial ability may be costly as more capable managers may lead to greater crash risk.

Suggested Citation

  • Huijie Cui & Chong Chen & Yanan Zhang & Xiji Zhu, 2019. "Managerial ability and stock price crash risk," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 26(5), pages 532-554, September.
    • Handle: RePEc:taf:raaexx:v:26:y:2019:i:5:p:532-554
    DOI: 10.1080/16081625.2019.1636662
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    Cited by:

    1. Long, Wenbin & Tian, Gary Gang & Hu, Jun & Yao, Daifei (Troy), 2020. "Bearing an imprint: CEOs' early-life experience of the Great Chinese Famine and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 70(C).
    2. Chen, Suyun & Li, Zongze & Han, Binbin & Ma, Hengyun, 2021. "Managerial ability, internal control and investment efficiency," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    3. Efstathios Magerakis & Ahsan Habib, 2022. "Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 402-432, September.
    4. Puspita Ghaniy Anggraini & Mahfud Sholihin, 2023. "What do we know about managerial ability? A systematic literature review," Management Review Quarterly, Springer, vol. 73(1), pages 1-30, February.
    5. Vuong, Giang Thi Huong & Nguyen, Phuc Van & Barky, Walid & Nguyen, Manh Huu, 2024. "Stock return volatility and financial distress: Moderating roles of ownership structure, managerial ability, and financial constraints," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 634-652.
    6. Isabel‐María García‐Sánchez & Beatriz Aibar‐Guzmán & Cristina Aibar‐Guzmán & Tânia‐Cristina Azevedo, 2020. "CEO ability and sustainability disclosures: The mediating effect of corporate social responsibility performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(4), pages 1565-1577, July.
    7. Duan, Jiangjiao & Lin, Jingjing, 2023. "The impact of COVID-19 on the crash risk of registered new shares in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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