CEO age and stock price synchronicity

Abstract

We investigate the impact of Chief Executive Officer (CEO) age on stock price synchronicity, which measures the amount of market-wide information relative to firm-specific information reflected in stock prices. Based on a sample of US-listed firms from 1992 to 2020, we find that firms managed by older CEOs tend to exhibit lower stock price synchronicity. In terms of earnings management, an important factor for stock price synchronicity, older CEOs engage less intensively in discretionary accruals. Furthermore, the positive relationship between discretionary accruals and stock price synchronicity is less pronounced in firms managed by older CEOs. We confirm that the effect is more pronounced under weaker governance regimes. We further address concerns about endogeneity problems using instrumental variable (IV) estimation and the entropy balancing approach. Overall, our findings support the prediction of CEO career concern models, where younger CEOs exhibit herding behavior.