The impact of CEO pay and its disclosure on stock price crash risk: evidence from China

Abstract

Purpose The purpose of this paper is to investigate whether CEO pay is related to stock price crash risk, and how ownership concentration mediates this relationship. Design/methodology/approach The authors hypothesize that companies who disclose CEO pay would experience lower stock price crash risk than their non-transparent peers. For companies whose CEO pay is published, the authors conjecture that the CEO pay slice is positively related to stock price crash risk. The authors also investigate whether the impact of CEO pay on crash risk would be weaker or stronger under a concentrated ownership structure and a mutual fund ownership structure. This study relies on 14,499 firm-year observations from the Chinese capital market to shed light on these questions. Findings The authors demonstrate that the magnitude of CEO pay slice has little effect on stock price crash risk. However, whether CEO pay is disclosed at all is a strong indicator for stock price crash risk. Originality/value The paper expands on the literature by adding a new factor to explain the stock price crash risk, which is vital to investor protection and the stability of the financial market. The research also adds to the sparse literature on CEO centrality and has implications for corporate governance and public policy.