CEO Equity Incentive Duration and Expected Crash Risk


Student thesis: Doctoral Thesis

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Awarding Institution
Award date15 Jun 2021


This study examines the impact of CEO equity incentive duration on firm-specific ex ante crash risk. Using a measure that explicitly accounts for the length of stock and option grants’ vesting schedules, I find that longer CEO equity incentive duration reduces investors’ perceived crash risk, as reflected in the steepness of option implied volatility smirk. This finding holds for alternative measures of CEO equity incentive duration and after controlling for the strength of CEO equity incentives and managerial ability. I further find that this negative relation is more pronounced for firms with a lower level of long-term institutional ownership and for firms with a lower level of analyst coverage. Overall, the results suggest that lengthening CEO equity incentive duration discourages managers from withholding bad news and deferring the termination of negative NPV projects, which reduces investors’ perceived crash risk.

    Research areas

  • equity incentive duration, expected crash risk, bad news withholding