Religion and Stock Price Crash Risk

2015 ◽  
Vol 50 (1-2) ◽  
pp. 169-195 ◽  
Author(s):  
Jeffrey L. Callen ◽  
Xiaohua Fang
Keyword(s):  
Social Norms ◽  
Stock Price ◽  
Institutional Ownership ◽  
Bad News ◽  
Crash Risk ◽  
County Level ◽  
Governance Mechanisms ◽  
Negative Relation ◽  
Robust Evidence

AbstractThis study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion, as a set of social norms, helps to curb bad-news-hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership.

Capital Market Consequences of Audit Office Size: Evidence from Stock Price Crash Risk

2020 ◽  
Vol 39 (2) ◽  
pp. 1-26
Author(s):  
Jeffrey L. Callen ◽  
Xiaohua Fang ◽  
Baohua Xin ◽  
Wenjun Zhang
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Bad News ◽  
Crash Risk ◽  
Public Firms ◽  
Big 4 ◽  
Empirical Tests ◽  
Office Size ◽  
Market Consequences ◽  
Robust Evidence

SUMMARY This study examines the association between the office size of engagement auditors and their clients' future stock price crash risk, a consequence of managerial bad news hoarding. Using a sample of U.S. public firms with Big 4 auditors, we find robust evidence that local audit office size is significantly and negatively related to future stock price crash risk. The evidence is consistent with the view that large audit offices effectively detect and deter bad news hoarding activities in comparison with their smaller counterparts. We further explore two possible explanations for these findings, the Auditor Incentive Channel and the Auditor Competency Channel. Our empirical tests offer support for both channels. JEL Classifications: G12; G34; M49.

scholarly journals Multinational Corporations and Stock Price Crash Risk

2016 ◽  
Vol 5 (4) ◽  
pp. 39-63
Author(s):  
Anthony May ◽  
Rodney Boehme
Keyword(s):  
Asymmetric Information ◽  
Stock Price ◽  
Multinational Firms ◽  
Agency Problems ◽  
Bad News ◽  
Crash Risk ◽  
Governance Mechanisms ◽  
Tail Risk ◽  
Domestic Firms ◽  
Market Participants

A nascent literature in finance and accounting on tail risk in individual stock returns concludes that bad news hoarding by corporate managers engenders sudden, extreme crashes in a firm’s stock price when the bad news is eventually made public. This literature finds that firm-specific crash risk is higher among firms with more severe asymmetric information and agency problems. A hitherto disjointed literature spanning the fields of international business, finance, and accounting suggests that geographic dispersion in a firm’s operations, and especially dispersion across different countries, gives rise to organizational complexities and greater costs of monitoring that can exacerbate asymmetric information and agency problems. Motivated by the confluence of arguments and findings from these two strands of literature, this paper examines whether stock price crash risk is higher among multinational firms than domestic firms. Using a large sample of U.S. headquartered firms during 1987-2011, we find robust evidence that multinational firms are significantly more likely to crash than domestic firms. Moreover, we show that the difference in crash risk between multinational and domestic firms is most acute among firms with weaker corporate governance mechanisms, including weaker shareholder rights, less independent boards, and less stable institutional ownership. Our analysis indicates that stronger monitoring from each of these three governance mechanisms significantly attenuates the positive relation between crash risk and multinationality. Our findings are robust to the use of alternative measures of crash risk and to controlling for known determinants of crash risk identified in prior studies. Our study offers new insights that should hold value for scholars and market participants interested in understanding the implications of heighted agency problems that multinational firms are likely to encounter and scholars and market participants interested in developing models that more accurately predict tail risk in the equity returns of individual firms.

scholarly journals Seasoned Equity Offerings and Stock Price Crash Risk

2020 ◽  
Vol 9 (4) ◽  
pp. 131-146
Author(s):  
Rodney D. Boehme ◽  
Veljko Fotak ◽  
Anthony May
Keyword(s):  
Stock Price ◽  
Seasoned Equity Offerings ◽  
Bad News ◽  
Good News ◽  
Crash Risk ◽  
Equity Offerings ◽  
Jump Risk ◽  
Large Sample ◽  
Secondary Shares ◽  
Robust Evidence

Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

Do Firms Redact Information from Material Contracts to Conceal Bad News?

2021 ◽  
Author(s):  
Dichu Bao ◽  
Yongtae Kim ◽  
Lixin (Nancy) Su
Keyword(s):  
Stock Price ◽  
Positive Association ◽  
Securities And Exchange Commission ◽  
Bad News ◽  
Crash Risk ◽  
Public Disclosure ◽  
Litigation Risk ◽  
External Monitoring ◽  
Future Performance ◽  
Equity Incentives

The Securities and Exchange Commission (SEC) allows firms to redact information from material contracts by submitting confidential treatment requests, if redacted information is not material and would cause competitive harm upon public disclosure. This study examines whether managers use confidential treatment requests to conceal bad news. We show that confidential treatment requests are positively associated with residual short interest, a proxy for managers’ private negative information. This positive association is more pronounced for firms with lower litigation risk, higher executive equity incentives, and lower external monitoring. Confidential treatment requests filed by firms with higher residual short interests are associated with higher stock price crash risk and poorer future performance. Collectively, our results suggest that managers redact information from material contracts to conceal bad news.

Does negative information in MD&A can reduce stock crash risk?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jianmai Liu
Keyword(s):  
Information Asymmetry ◽  
Information Disclosure ◽  
Stock Price ◽  
Negative Information ◽  
Bad News ◽  
Practical Significance ◽  
Crash Risk ◽  
Content Type ◽  
The Impact

Purpose As an important part of the disclosure of listed companies' annual reports, MD&A will disclose some "bad news" about the company. The purpose of this paper is to study whether such "bad news" can reduce information asymmetry and alleviate the risk of stock price crash remains to be seen. Design/methodology/approach Based on the sample of A-share listed companies from 2007 to 2016, the authors examine whether the negative information in MD&A could reduce stock price crash risk. Findings It is found that the negative information in MD&A does not reduce future crash, which indicates that the negative information in MD&A does not alleviate the information asymmetry. Further, it is also found this is due to the low readability of negative information which leads to the negative information not successfully released into the market timely. Only highly readable negative information can alleviate information asymmetry and suppress crash risk. In addition, the authors also find in the companies with more investor surveys negative tone is negatively correlated with crash risk, which means that investor surveys could help investors interpret the negative information in MD&A and alleviate stock price crash risk. Practical implications The practical significance of this article: this paper suggests that investors should carefully identify the quality of negative information in MD&A and pay attention to other quality characteristics besides credibility. This paper suggests that the regulator should pay attention not only to whether to disclose and the amount of disclosure but also to the quality of information disclosure, such as readability, so as to restrict management's strategic behavior in information disclosure. Originality/value First, different from previous studies on the impact of information disclosure on crash risk, this paper directly explores the impact of information in MD&A on stock price crash risk from the perspective of negative information disclosure that management most want to hide. It supplements the literature on the impact of information disclosure on stock price crash risk. Second, this paper studies the interaction between information tone and readability and its impact on the risk of stock price crash. Some studies believe that the credibility of negative news is higher and investors' reaction may be stronger. However, this paper finds that the disclosure of negative information may not be absorbed by the market because of the low readability. Third, this paper finds that investor surveys can help information users to interpret negative information and alleviate the risk of stock price crash, which shows that information disclosure of different channels will complement each other and improve information efficiency. Therefore, it advocates different information disclosure channels which has important practical significance for improving market pricing efficiency and reducing investment decision-making risk.

scholarly journals Slack And Crash Risk

2020 ◽  
Vol 36 (3) ◽  
pp. 107-120
Author(s):  
Theodore Goodman ◽  
Volkan Muslu ◽  
Hyungshin Park
Keyword(s):  
Supply Chain ◽  
Adverse Events ◽  
Stock Price ◽  
Bad News ◽  
Crash Risk ◽  
Working Capital ◽  
Current Income ◽  
Administrative Expenses

We examine how a firm’s operational slack is associated with current income and future stock price crash risk. By doing so, we test the validity of a firm’s alternative motivations for holding operational slack. We show that Supply Chain Slack, which is based on excess working capital, is associated with higher current profits and higher future crash risk. This evidence is consistent with the firm hoarding bad news. In contrast, SG&A Slack, which is based on excess selling, general, and administrative expenses, is associated with lower current income and lower future crash risk. This evidence is consistent with the firm insuring against rare and adverse events. Furthermore, a firm’s stock price crash risk is lower when a slack type is more costly, consistent with both motivations. Overall, our findings suggest a stronger profit-crash risk tradeoff when firms hold more operational slack.

Institutional Investors’ Monitoring and Stock Price Crash Risk: Evidence from Politically Connected Firms

2018 ◽  
Vol 21 (04) ◽  
pp. 1850028 ◽  
Author(s):  
Chwee Ming Tee ◽  
Angelina Seow Voon Yee ◽  
Aik Lee Chong
Keyword(s):  
Institutional Investors ◽  
Stock Price ◽  
Positive Association ◽  
Institutional Ownership ◽  
Political Connections ◽  
Crash Risk ◽  
Different Types

Motivated by recent studies on political connections and stock price crash risk, this study investigates whether there is an association between politically connected (POLCON) firms and stock price crash risk. Further, we examine whether institutional investors’ ownership can moderate this association. Using a dataset of Malaysian firms for the period 2002–2012, we show that POLCON firms are associated with higher risk of stock price crashes. However, the positive association between POLCON and stock crashes is attenuated by higher institutional ownership, implying effective monitoring. Finally, we find that only local institutional investors can significantly mitigate the positive association between POLCON firms and stock price crash risk. This suggests that different types of institutional investors can produce different monitoring outcomes in POLCON firms.

Managerial ownership and stock price crash risk: a case of Iranian firms

2019 ◽  
Vol 13 (1) ◽  
pp. 42-55
Author(s):  
Ali Haghighi ◽  
Mehdi Safari Gerayli
Keyword(s):  
Stock Price ◽  
Stock Exchange ◽  
Threshold Level ◽  
Bad News ◽  
Crash Risk ◽  
Managerial Ownership ◽  
Alternative Measure ◽  
Content Type ◽  
Research Hypothesis ◽  
The Impact

Purpose Increasing managerial ownership gives rise to the managerial opportunistic behaviors, among which bad news hoarding has attracted a lot of attention. Nevertheless, there always exists a threshold level at which the accumulated bad news releases abruptly, thereby resulting in corporate stock price crash risk. On the above arguments, this study aims to investigate the impact of managerial ownership on stock price crash risk of the firms listed on the Tehran Stock Exchange (TSE). Design/methodology/approach Sample includes the 485 firm-year observations from companies listed on the TSE during the years 2012-2016 and the research hypothesis was tested using multivariate regression model based on panel data. Findings The results reveal that managerial ownership increases the corporate stock price crash risk. These findings are robust to an alternative measure of stock price crash risk, individual analysis of the research hypothesis for each year and endogeneity concern. Originality/value The current study is almost the first study, which has been conducted in emerging capital markets, so the findings of the study not only extend the extant theoretical literature concerning the stock price crash risk in developing countries including emerging capital market of Iran but also help policymakers, regulators, investors and users of financial reports to make informed decisions.

Tournament Incentives and Stock Price Crash Risk

2018 ◽  
Vol 32 (3) ◽  
pp. 101-121 ◽  
Author(s):  
Ning Jia
Keyword(s):  
Stock Price ◽  
Crash Risk ◽  
Senior Executives ◽  
Public Firms ◽  
Scheme Design ◽  
External Monitoring ◽  
Paper Advance ◽  
Corporate Governance Quality ◽  
The Relationship ◽  
Robust Evidence

SYNOPSIS Using a large sample of U.S. public firms, I provide robust evidence that promotion-based tournament incentives, which are measured as the pay gaps between the CEO and other senior executives, are significantly and positively related to the firm's future stock price crash risk. The documented relationship is robust to controlling for corporate governance quality, and is attenuated for firms with a recent CEO turnover and for firms with more effective external monitoring. In contrast, the relationship is accentuated for firms that experience consecutive underperformance and for firms with greater opacity. Findings of this paper advance our understanding of the benefits and downsides of promotion incentives for non-CEO executives, and highlight the implications of inter-executive incentive scheme design for firm-specific stock price crash risk. JEL Classifications: G34; G12; G30.

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