Executive Team Incentive Heterogeneity and Information Suppression

ABSTRACT We examine whether the equity incentive heterogeneity of the executive team engenders a positive externality by curtailing stock price crash risk. Supporting this prediction, we find a negative relation between the equity incentive heterogeneity of the executive team and stock price crash risk. Our strong, robust evidence implies that this equity incentive heterogeneity plays a major internal governance role in preempting corporate bad news hoarding activities. In additional analysis, we show that the relation between equity incentive heterogeneity and crash risk is stronger for firms experiencing severe agency conflicts and poor governance. Collectively, our results lend empirical support for the importance of developing a heterogeneous equity incentive structure to deter corporate misbehavior, which, in turn, constrains stock price crash risk.