CEO power and stock price crash risk in China

Abstract

During the past decade, stocks crash as an economic phenomenon has frequently occurred in China's financial market, which not only triggered intense discussions among scholars but also became a serious concern for investors and relevant government departments. As proven by a large number of previous research, the steeply falling stock price mainly results from the administrators' concealing the company's major risks and negative news for personal interest. However, when bad news accumulates and fails to be hidden, it will go viral and immediately dominate the market, causing collective panic among investors, the according dump of stock, and therefore an eventually plummeting stock price. While due to managerial deficiencies like information asymmetry, insufficient board independence, and various drawbacks of collective decision-making, corporate decision-making, especially under the current corporate system with the separation of two powers, has gradually flowed to the management, or more specifically, the CEO at the top of the hierarchy. The power concentration in return facilitates the concealing of the actual operating conditions and further aggravates the fluctuation of the company's operating performance to obtain additional benefits. This paper aims to examine the relation between CEO power and the risk of stock price collapse based on the "information asymmetry theory" and "manager power theory". Meanwhile, it separately expounds on the influence of the nature of property rights and different supervision mechanisms on the relationship between CEO power and stock price collapse risk and therefore puts forward a research hypothesis. Then referring to the existing research, this paper also uses the compensation ratio (of CEO compensation to the compensation of the top three executives, as an indicator of the CEO power) and the corresponding NCSKEW and DUVOL values (another two indicators obtained through extensive calculations according to existing models) to ideally estimate the impact of CEO power on crash risk, based on which, four hypothesis are then proposed and tested empirically, whose conclusions are listed below: Firstly, CEO power is proven to be correlated with stock price crash risk. Secondly, influence differs according to the nature of entities: compared with non-state-owned enterprises, CEO power in state-owned enterprises has a minor impact on the risk of stock price crashes. Thirdly, the impact of CEO power on crash risk is less pronounced when the scale of the supervisors' board is more prominent. Last but not least, higher institutional ownership can similarly lead to a less pronounced impact of CEO power on crash risk. |본문은 먼저 중국 시장에서 CEO 권력이 기업 주가붕괴 리스크에 미치는 영향에 대해 논의하여 그 다음에는, 국영기업은 복잡한 정치문제와 그 재산권이 국민에 속하는 특성을 지니기 때문에 CEO의 권력이 왕왕 더욱 집중되어 본문은 서로 다른 재산권의 특성 하에 양자 간의 사이가 유의차가 있는지를 계속 탐구한다. 그리고 감시위원회, 기관투자자가 관리자 집권에 따른 주가 폭락문제를 완화할 수 있을지 따져본다. 이에 따라 본문에 4가지 가설을 제기한다. 기재된 문헌 을 참고해 CEO급여와 회사 TOP3의 고위직 임원 급여의 대비 CEO권력을 표시하고 기존 모델들을 참고해 대량 계산을 거쳐 주가붕괴 위험지표 2개 를 획득한다. 실증분석을 통해 분문에서 제시한 가설을 다 검증했고 다음과 같은 결론을 내렸다: ① CEO 권력이 커질수록 이 회사의 주가붕괴 리스크가 커진다. ② 비국영기업에 비해 국영기업 중에 CEO 권력이 주가붕괴 리스크에 미치는 영향이 적다. ③ 소규모 감시위원회에 비하면, 감시위원회의 규모가 커질수록 CEO권력이 주가붕괴 리스크에 끼치는 영향이 더 작다. ④ 기관지분율이 적은 회사에 비해, 기관지분율이 클수록 CEO권력이 주가붕괴 리스크에 대해 미치는 영향이 작다.