Abstract

Personal life events of a chief executive officer can generate tensions between the CEO’s right to personal privacy and the desire of shareholders for information. Such circumstances can create information asymmetry between the executive management and the shareholders of a firm, a situation likely to produce unfavorable pressures on an organization’s stock price. Failure to fully disclose material personal life events can impact the decision-making actions of the CEO, causing the stock price of the firm to vacillate as a result of rumors and other informational uncertainties. These vacillations in stock price may impact a firm’s liquidity, increase the cost of capital, and affect long term returns to shareholders. We draw upon the ethical leadership and signaling theory literatures to demonstrate how a firm can reduce stock price volatility through a CEO making non-required disclosures that reduce information asymmetry.