Impact of Stock Price Crash Risk on the CEO's Future Power

Since the Sudden changes in stock prices are unusual and usually negative which occurs in the absence of important economic events Therefore, it has always been considered. The purpose of this study is to investigate the effect of stock price crash risk on the future strength of the CEO. Accordingly, 103 companies during the period 2015 to 2019 have been surveyed. The results of reviewing the data collected during the period showed that the risk of crash in stock prices does not have a significant effect on the future strength of the CEO. As mentioned in the theoretical literature of stock prices’ crash, several factors can lead to this phenomenon, and management performance alone is not a sufficient condition to create conditions for crashing stock prices. For instance, according to the stock price bubble theory, stock price changes occur due to a shock without any proper and economic justification, and in fact cognitive errors that affect human psychology can affect investors' judgments in stock valuation and pricing. According to this, it seems that the crash in stock prices in the period under study was formed for reasons beyond the control of management and less managerial factors have been effective in crashing stock prices. Hence, the reduction of the CEO's power in this situation is unexpected. This finding provides new evidence in support of behavioral finance theory in stating that the CEO's future power is not affected by crashing stock prices.