CFOs versus CEOs: Equity Incentives and Crashes

52 Pages Posted: 30 Dec 2010 Last revised: 27 Sep 2011

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Liandong Zhang

Singapore Management University - School of Accountancy

Date Written: March 10, 2011

Abstract

Using a large sample of U.S. firms for the period 1993-2009, we provide evidence that the sensitivity of a chief financial officer’s (CFO) option portfolio value to stock price is significantly and positively related to the firm’s future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

Keywords: Equity incentives, Crash risk, Compensation, Corporate governance, CFO, CEO

JEL Classification: D89, G12, G14, G17, G34, M52

Suggested Citation

Kim, Jeong-Bon and Li, Yinghua and Zhang, Liandong, CFOs versus CEOs: Equity Incentives and Crashes (March 10, 2011). Journal of Financial Economics, Vol. 101, pp. 713–730, 2011, Available at SSRN: https://ssrn.com/abstract=1732088

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Yinghua Li

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Liandong Zhang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://accountancy.smu.edu.sg/faculty/profile/150531/Liandong-ZHANG

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