Recent sociological research suggests that culturally tight environments enforce strong social penalties for mistakes. I find that such culturally tight environments incentivize managers to suppress negative information, increasing stock price crash risk. Opaque financial disclosure is a channel through which cultural tightness affects managerial bad news hoarding. Labor and capital market pressures strengthen the positive effect of cultural tightness on crash risk. The instrumental regressions using labor-intensive agriculture and ethnic homogeneity as instruments confirm a positive tightness-crash relationship. Finally, changes in environments because of headquarters relocations affect managerial tendencies to withhold bad news, resulting in changes in crash risk levels.

This study analyzes the effect of social pressures on CEO compensation focusing on social interactions within 60 miles of the firm. Social premiums in CEO pay are in excess of what can be explained by firm performance and characteristics, corporate governance, and local economic variables. Using the S&P 500 companies during 1994-2005, we show that the average social premium in a social circle with 31 CEOs (the 75th percentile of social circles) is $1.29 million higher than that in a circle with six CEOs (the 25th percentile). Golfing, sharing directors, and comparing mansions are likely avenues of social interactions.

This study analyzes the effect of social pressures on CEO compensation focusing on social interactions within 60 miles of the firm. Social premiums in CEO pay are in excess of what can be explained by firm performance and characteristics, corporate governance, and local economic variables. Using the S&P 500 companies during 1994-2005, we show that the average social premium in a social circle with 31 CEOs (the 75th percentile of social circles) is $1.29 million higher than that in a circle with six CEOs (the 25th percentile). Golfing, sharing directors, and comparing mansions are likely avenues of social interactions.