Managerial ability and stock price crash risk

This study examines the impact of managerial ability on firms’ stock price crash risk. Using a large sample of U.S. firms, we find that high-ability managers are associated with a higher likelihood of future crashes. The positive relation is more pronounced when managers have larger career concerns, possess better knowledge of operational information and engage in more risk-taking activities. In addition, we show that bad news hoarding and overinvestment are two possible channels through which managerial ability increases crash risk. Overall, our findings indicate that managerial ability may be costly as more capable managers may lead to greater crash risk.