Self-interested board of director and stock price crash risk in loss-making firms

This research investigates the relationship between fat cat firms and crash risk. Our empirical results find that under industry fixed effects, fat cat firms are positively associated with stock price crash, demonstrating that a self-interested board of directors leads to a serious agency problem. We find consistent results after we control for other types of fat cat firms, sample selection bias, endogeneity problem and use different measurements of crash risk. Finally, we also report that under the within-firm scenario, the more frequently firms are listed as fat-cat firm announcements, the worse agency problem it encountered, which causes fat cat firms to have higher crash risk.