The Effect of CEO Power on Stock Price Delay

الموضوعات :

Saeid Baseri ¹ , Hossein Jahangirnia ² , Mohammad Kashanipour ³ , Reza Gholami Jamkarani ⁴

1 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
2 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
3 - Department of Accounting and Finance, Faculty of Management and Accounting, College of Farabi, University of Tehran, Qom, Iran
4 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran

تاريخ الإرسال : 06 الأربعاء , صفر, 1442 تاريخ التأكيد : 24 السبت , شوال, 1442 تاريخ الإصدار : 29 الجمعة , شعبان, 1443

الکلمات المفتاحية: Stock Price Delay, CEO Power, Information Transparency,

ملخص المقالة :

News and information reflect on the stock prices rapidly in the capital market. But some factors cause delays in reaching the stock market to its intrinsic value. This study aims to investigate the effect of CEO Power on stock price delay of listed Companies in Tehran Stock Exchange. In order to measure the power of the CEO, six different criteria, based on the research of Lisic et al. have been used. For this purpose, data related to 107 companies in Tehran Stock Exchange from 2011 to 2018 were analyzed. The regression model used in this research has been assessed using panel data with fixed effects approach. The results showed that CEO power has a negative and significant impact on stock price delay. The results also indicate that the powerful executives have more independence and play a more supervisory role over the board of directors; This reduces the infringement of the stakeholder rights and lowers the agency costs. Lower agency costs result in less information asymmetry and lower financial information transparency, and ultimately, reduces the stock price delay.

المصادر:

References

[1] Adams R, B., Mehran, H., Corporate Performance, Board Structure and its Determinants in the Banking Industry in EFA 2005 Moscow Meetings. Doi: 10.2139/ssrn.302593.

[2] Aflatoni, A., Investigating the Effect of Financial Reporting Quality and Information Asymmetry on Stock Price Delay, Journal of Accounting Advances, 2016, 8(1), P.1-22, (In Persian).

[3] Akins, B., Ng, J., Verdi, R., Investor competition over information and the pricing of information asymmetry, The Accounting Review, 2012, 87(1), P.35-58. Doi: 10.2139/ssrn.1769905.

 [4] Amihud, Y., Mendelson, H., Asset Pricing and the Bid-Ask Spread, Journal of Financial Economics, 1986, 17, P.223-249. Doi: 10.1016/0304-405X (86)90065-6.

[5] Baker, T, A., Lopez, T. J., Reitenga, A. L., Ruch, G. W., The influence of CEO and CFO power on accruals and real earnings management, Review of Quantitative Finance and Accounting, 2019, 52(1), P.325-345.‏

Doi: 10.1007/s11156-018-0711-z.

[6] Barry, C., Brown, S., Differential information and the small firm effect, Journal of Financial Economics, 1984, 13(2), P.283-294. Doi: 10.1016/0304-405X(84)90026-6.

[7] Bebchuk, L. A., Cremers, K. M., Peyer, U. C., The CEO pay slice, Journal of financial Economics, 2011, 102(1), P.199-221. ‏Doi: 10.1016/j.jfineco.2011.05.006.

[8] Callen, J. L., Khan, M., Lu, H., Accounting Quality, Stock Price Delay and Future Stock Returns, Working Paper. 2009.

[9] Callen, J., Govindaraj, S., Xu, L., Large time and small noise asymptotic results for mean reverting diffusion processes with applications, Economic Theory, 2000, 16(2), P.401-419. Doi: 10.1007/PL00004090.

[10] Callen, J., Khan, M., Lu, H., Accounting quality, stock price delay, and future stock returns, Contemporary Accounting Research, 2012, 30(1), P.269-295. Doi: 10.1111/j.1911-3846.2011.01154.x.

[11] Chao, C. C., Hu, M., Munir, Q., Li, T., The impact of CEO power on corporate capital structure: New evidence from dynamic panel threshold analysis, International Review of Economics and Finance, 2017, 51, P.107-120. ‏ Doi: 10.1016/j.iref.2017.05.010.

 [12] Constantinides, G. M., Optimal stock trading with personal taxes: Implications for prices and the abnormal January returns, Journal of Financial Economics, 1984, 13(1), P.65-89. ‏ Doi: 10.1016/0304-405X(84)90032-1.

[13] Easley, D., S., Hvidkjaer, and M, O’Hara., Is information risk a determinant of asset returns? The Journal of Finance, 2002, 57(5), P.2185–221. http://www.jstor.org/stable/3094509.

[14] Ebrahimi, A., Haidary, K., Omrani, H., Investigation of board composition on conservatism and timeliness in reporting of earnings in listed companies in Tehran Stock Exchange, Journal of Accounting and Auditing Studies, 2013, 2(4), P.21-48, (In Persian).

[15] Eom, C., Do foreign investors help the price discovery process? Evidence from Korea, Retrieved on 22 June 2015 from http://ssrn.com/abstract=2553033.

[16] Faccio, M., Marchica, M.-T., Mura, R., CEO gender, corporate risk-taking, and the efficiency of capital allocation, Journal of Corporate Finance, 2016, 39, P.193-209. Doi: 10.1016/j.jcorpfin.2016.02.008.

[17] Farag, H., and Mallin, C., The Impact of the Dual Board Structure and Board Diversity: Evidence from Chinese Initial Public Offerings (IPOs), Journal of Business Ethics, 2015, P.1- 17. Doi: 10.1007/s10551-015-2649-6.

[18] Finkelstein, S., Power in top management teams: Dimensions, measurement, and validation, Academy of Management journal, 1992, 35(3), P.505-538.‏ Doi: 10.2307/256485.

[19] Finkelstein, S., D'aveni, R. A., CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command, Academy of Management journal, 1994, 37(5), P.1079-1108.‏ Doi: 10.5465/256667.

[20] Finkelstein, S., D.C. Hambrick., Strategic leadership: Top executives and their effects on organizations, South-Western Pub. 1996. Doi: 10.2307/259414.

[21] Gordon, N., and Wu, Q., Informed Trade, Uninformed Trade, and Stock Price Delay, 2014, www.ssrn.com. Doi: 10.1080/00036846.2017.1412075.

[22] Hao, Fang., Jen, SinLee., Effect of CEO power and board strength on bank performance in China, Journal of Asian Economics, August 2020, 69,101215.

[23] Haider, J., Fang, H. X., CEO power, corporate risk taking and role of large shareholders, Journal of Financial Economic Policy, 2018, 10(1), P.55-72. ‏ Doi: 10.1108/JFEP-04-2017-0033.

[24] Javanmard, M., PourMousa, A., The Study of Effects of company’s information reports to Tehran Stock Market Daily Behavior, Journal of empirical research in accounting, 2013, 3(9): 113-133, (In Persian).

[25] Hou, K., Moskowitz, T, J., Market Friction, Price delay and the crosssectioncross-section of expected returns, Review of Financial Studies 2005, 18, P.981-1020. Doi: 10.1093/rfs/hhi023

[26] Jensen, M., and W, Meckling., Theory of the firm: Managerial behavior, agency costs and Ownership Structure. Journal of Financial Economics, 1976, 3(4): 305-360. Doi: 10.1016/0304-405X(76)90026-X.

[27] Jones, Charles M., and Lipson, Marc L., Price Impacts and Quote Adjustment on the Nasdaq and NYSE/AMEX, Paine Webber Working Paper, 1999, 99-08. Doi: 10.2139/ssrn.185608.

[28] Khodamipour, A., Omidi, M., Mohammadrezakhani, V., Investigating the Relationship between Speed of Price Adjustment and Earnings Quality of Listed Companies in Tehran Stock Exchange, Journal of Accounting Advances, 2014, 6(2), P.27-52, (In Persian).

[29] Lee, C., Hsieh, T., Cheng, Li., Financial reporting quality and speed of price adjustment, International Research Journal of Finance and Economics, 2010, 53, P.134-143.

 [30] Lisic, L. L., Neal, T. L., Zhang, I. X., Zhang, Y., CEO power, internal control quality, and audit committee effectiveness in substance versus in form, Contemporary Accounting Research, 2016, 33(3), P.1199-1237.‏

Doi: 10.1111/1911-3846.12177.

[31] Liu, Y., Jiraporn, P., The effect of CEO power on bond ratings and yields, Journal of empirical Finance, 2010, 17(4), 744-762. ‏ Doi: 10.1016/j.jempfin.2010.03.003.

[32] Luo, M., Chen, T., Yan, I., Price informativeness and institutional ownership: evidence from Japan, Review of Quantitative Finance and Accounting, 2014, 42(4), P.627-651. Doi: 10.1007/s11156-013-0355-y.

[33] Mehrara, M., Abdoli, Q., The asymmetry of stock market volatility: the case of Iran, Iranian Economic Research Journal, 2006, 8(25), P.20-40, (In Persian). Doi: 10.5539/ijef.v3n6p16.

[34] Obaidullah, M., Ethics and Efficiency in Islamic Stock Market, International Journal of Islamic Financial services, 2002, 3(2).

[35] Nandini, R., Deepak, K., CEO Characteristic: Does Industry Matter? The Academy of Management Journal, 1996, 39(1), P.197-255. Doi: 10.5465/256636.

[36] Pfeffer, J., New directions for organization theory: Problems and prospects, Oxford University Press on Demand. ‏ 1997. Doi: 10.5465/amr.1999.1580449.

[37] Pfeffer, J., Leblebici, H., Executive Recruitment and the Development of Interfirm Organizations, Administrative Science Quarterly, 1973, 18(4), P.449. Doi: 10.2307/2392198

[38] Pourzamani, Z., Ghamari, M., The relationship between financial reporting quality and the speed of price adjustment, the financial accounting and auditing researches, 2014, 6(21), P.91-116, (In Persian).

[39] Rahmani, A., Yousefi, F., RobatMeili, M., The Relationship between Accounting Information Quality on Stock Price Delay and Forecasting of Future Stock Returns of Listed Companies on the Tehran Stock Exchange, Journal of empirical research in accounting, 2011, 5(20), P.137-158, (In Persian).

[40] Rahnama, F., Zandi, A., CEO's power and capital structure based on Lee's model, Journal of Accounting and Auditing Studies, 2018, 9(1), P.1-20, (In Persian). Doi: 10.22034/ijf.2019.194923.1051.

[41] Sah, R. K., Stiglitz, J. E., The architecture of economic systems: Hierarchies and polyarchies, The American Economic Review, 1986, P.716-727. Available at https://www.jstor.org/stable/1806069.

[42] Sah, R. K., Stiglitz, J. E., The quality of managers in centralized versus decentralized organizations, The Quarterly Journal of Economics, 1991, 106(1), P.289-295.‏ Doi: 10.2307/2937917.

[43] Saunders and cornet., Financial Markets and Institutions, Mcgraw Hill, 2001.

[44] Shapiro, F., Maxfield, L., Eye movement desensitization and reprocessing (EMDR): Information processing in the treatment of trauma, Journal of clinical psychology, 2002, 58(8), P.933-946.‏ Doi: 10.1002/jclp.10068.

[45] Shleifer, A., Vishny, A. R., A survey of corporate governance, The Journal of Finance, 1997, 52(2), P.737–783. Doi: 10.3386/w5554.

[46] Su, K., Liu, H., Zhang, H., Board size, social trust, and corporate risk taking: Evidence from China, Managerial and Decision Economics. 2019, Doi:10.1002/mde.3030.

[47] Sun, P.W., Managerial structure and stock price delay in China 2014, www.ssrn.com

[48] Tavangar, A., Scafi, A., The Relationship between CEO power, audit committee characteristics, and internal quality control, the financial accounting and auditing researches, 2018, 10(38), P.207-187, (In Persian).

[49] Verrecchia, R., The rapidity of price adjustments to information, Journal of Accounting and Economics, 1980, 2(1), P.63–92. Doi: 10.1016/0165-4101(80)90015-4

 [50] Yasir, Sh., CEO power and stock price crash risk in China: Do female directors' critical mass and ownership structure matter? International Review of Financial Analysis 2020 Volume 68, March 2020, 101457