À繫¿¬±¸ Á¦ ±Ç È£ (2021³â 11¿ù)
Asian Review of Financial Research, Vol., No..
pp.355~419
pp.355~419
Lesson from stock price crash: CEO overconfidence and the crash experience
Hyeong Joon Kim School of Business and Technology Management, College of Business, Korea Advanced Institute of Science and Technology, 291, Daehak-ro, Yuseong-gu, Daejeon, Republic of Korea
Seongjae Mun Department of Economics and Finance, Soonchunhyang University, 22, Soonchunhyang- ro, Sinchang-myeon, Asan-si, Chungcheongnam-do, Republic of Korea
Seung Hun Han School of Business and Technology Management, College of Business, Korea Advanced Institute of Science and Technology, 291, Daehak-ro, Yuseong-gu, Daejeon, Republic of Korea
The literature posits that overconfident CEOs are more likely to hoard bad news, resulting in higher stock price crash risk than non-overconfident CEOs. However, what if a CEO experiences an extreme market crash of their firm¡¯s stock price during their tenure? We provide evidence that overconfident CEOs appear to moderate their behavior after their stock price crash experience. We find that the positive effect of CEO overconfidence on a firm¡¯s future stock price crash risk is less pronounced after a crash experience. We propose three possible reasons. First, a CEO¡¯s crash experience, particularly the first one, reduces their confidence level. Second, firms that experience a crash tend to change their CEO, typically from an overconfident to a non-overconfident CEO. Finally, firms seek to adjust their CEO compensation structure after a crash experience. Our results similarly hold for executives in firms. Overall, we suggest that both the CEO and the firm may learn from their crash experiences.
Hyeong Joon Kim
Seongjae Mun
Seung Hun Han
The literature posits that overconfident CEOs are more likely to hoard bad news, resulting in higher stock price crash risk than non-overconfident CEOs. However, what if a CEO experiences an extreme market crash of their firm¡¯s stock price during their tenure? We provide evidence that overconfident CEOs appear to moderate their behavior after their stock price crash experience. We find that the positive effect of CEO overconfidence on a firm¡¯s future stock price crash risk is less pronounced after a crash experience. We propose three possible reasons. First, a CEO¡¯s crash experience, particularly the first one, reduces their confidence level. Second, firms that experience a crash tend to change their CEO, typically from an overconfident to a non-overconfident CEO. Finally, firms seek to adjust their CEO compensation structure after a crash experience. Our results similarly hold for executives in firms. Overall, we suggest that both the CEO and the firm may learn from their crash experiences.
CEO overconfidence,Stock price crash,CEO experience