The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Sat, 16 May 2026 11:30:10 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png CFOs versus CEOs: Equity Incentives and Crashes – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 CFOs versus CEOs: Equity Incentives and Crashes https://corpgov.law.harvard.edu/2011/02/02/cfos-versus-ceos-equity-incentives-and-crashes/?utm_source=rss&utm_medium=rss&utm_campaign=cfos-versus-ceos-equity-incentives-and-crashes https://corpgov.law.harvard.edu/2011/02/02/cfos-versus-ceos-equity-incentives-and-crashes/#comments Wed, 02 Feb 2011 14:25:54 +0000 http://blogs.law.harvard.edu/corpgov/?p=15374?d=20150106101155EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday, February 2, 2011
Editor's Note:

The following post comes to us from Jeong-Bon Kim, Professor of Accountancy at City University of Hong Kong; Yinghua Li of the Accounting Department at Purdue University; and Liandong Zhang of the Department of Accountancy at City University of Hong Kong.

In the study, CFOs versus CEOs: Equity Incentives and Crashes, forthcoming in the Journal of Financial Economics, we examine the impact of executive equity incentives on a firm’s stock price crash risk. Based on a recent theoretical study by Benmelech, Kandel, and Veronesi (2010), we argue that equity incentives motivate managers to conceal bad news about growth opportunities and to choose sub-optimal investment policies to support the pretense. The accumulation of bad news within a firm leads to a severe overvaluation and a subsequent crash in the stock price.

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