External Labour Market Competitions and Stock Price Crash Risk: Evidence from Exposures to Competitor CEOs’ Award-Winning Events

Abstract

This study examines whether chief executive officers’ (CEOs’) external labor market competitions affect their firms’ stock price crash risks. Using CEOs’ exposure to the prestigious media-award-winning events of competitor CEOs, we document a significant increase in stock crash risk for firms with award-exposed CEOs, compared with firms without such CEOs, and this treatment effect is attenuated by strong external monitoring and high-quality information environment, yet exacerbated by CEOs’ similarity with award winners and likelihood of winning the award. We further find that withholding bad news, risk taking, and financial misreporting are the possible channels through which competitor CEOs’ award events affect stock price crash risk. Our study sheds new light on the formerly under-researched adverse effects of CEO awards by suggesting that external labor market competition associated with CEO awards plays an important role in influencing extreme downside risk in the equity market.