Executive Overconfidence,Equity Incentive And Stock Price Crash Risk

Stock market is a “barometer” of a country's economy,which plays a vital role in economic development and financial security.Healthy and stable stock market can give full play to the function of capital allocation,improve the efficiency of capital operation,and promote the growth of real economy;and the violent fluctuation of stock market will seriously affect the confidence of investors and enterprises in the development of national economy.Due to the short history of the development of China's stock market,inadequate supervision and immature investors,the phenomenon of stock price "soaring and plunging" occurs from time to time.Compared with the sharp rise of stock price,the sharp fall of stock price brings more harm,which is a huge hidden danger of national financial security and economic development.According to the information hiding theory put forward by Jin and Myers in 2006,executives tend to conceal negative news in order to maintain a good reputation or share price for their own interests.When executives are unable or unwilling to conceal negative news,the concentrated release of negative news will lead to a sharp decline in stock prices.As the main body responsible for information disclosure,the motivation and behavior of senior managers are the key to information hiding.As the internal psychological characteristics and external incentive mechanism of senior managers,executive overconfidence and equity incentive will have a certain impact on the stock price crash.Enterprises grant equity incentives to executives to alleviate agency problems,but at the same time,it also induces short-sighted behavior of executives and increases the risk of stock price crash.Overconfident executives tend to underestimate project risks and overestimate project returns.On the one hand,it is easy to cause executives to run projects with losses for too long,and insist that the project can be profitable in the future,refuse to disclose information to the market,and the generation and accumulation of negative news lead to stock price crash;on the other hand,enterprises may also observe the characteristics of overconfidence of executives and consider it when formulating equity incentives.Therefore,this paper puts executive overconfidence,equity incentive and stock price crash risk into a unified research framework to study the relationship of them.Based on the principal-agent theory,information hiding theory and incentive/utilization hypothesis,this paper makes a theoretical analysis,and takes the A-share listed companies in Shanghai and Shenzhen stock markets in 2010-2017 as samples for empirical analysis.The results show that: firstly,the overconfidence of executives will increase the risk of stock price crash;secondly,the company will grant the overconfident executives less equity incentives,the reduced equity incentives are mainly stock option incentives,but have little impact on the restricted stock incentives;thirdly,equity incentives will lead to the increase of the risk of stock price crash,and the overconfidence of executives.In the relationship with the risk of stock price crash,it plays a reverse intermediary role(i.e.the masking role),which is mainly generated by stock option incentives.