Do statutory internal auditors influence stock price crash risk? Firm-level evidence from Korea

2019 ◽  
Vol 35 (2) ◽  
pp. 207-237
Author(s):  
Soo Yeon Park ◽  
Hyun-Young Park
Keyword(s):  
Stock Price ◽  
Bad News ◽  
Crash Risk ◽  
Fiscal Year ◽  
High Quality ◽  
Firm Level ◽  
Content Type ◽  
Internal Auditors ◽  
Financial Expertise

Purpose Based on 1,798 firm-year observations from 2009 to 2013, using publicly available disclosure data for Korean listed firms, this study aims to examine whether statutory internal auditors influence firm-level stock price crash risk. Design/methodology/approach Based on the bad news hoarding theory of crash risk, the authors investigate the association between the quality of statutory internal auditors and one-year-ahead stock price crash risk. The quality of statutory internal auditors is measured as the compensation of statutory internal auditors and the financial expertise of statutory internal auditors. Stock price crash risk is measured as an indicator variable whether a firm experiences one or more crash weeks during the fiscal year period. Findings The authors find that higher quality of statutory internal auditors – measured through greater compensation and greater financial expertise – is associated with lower possibilities of future stock price crash risk. These results indicate that high-quality statutory internal auditors mitigate bad news hoarding of managers because of their greater capability and stronger incentive to lower litigation risk and preserve their reputation. The results are mostly robust to different measures for stock price crash risk and the quality of statutory internal auditors. Practical implications The findings of this study regarding stock price crash risk are important for investors because such risk can significantly affect investor welfare. The results indicate that statutory internal auditors play an important role in controlling future stock price crash risk and maintaining stability in the equity market. Originality/value This study adds to the extant literature on the determinants of stock price crash risk and is the first to examine the impact of internal auditors on stock price crash risk. Moreover, this study also contributes to the existing literature on internal auditor quality by showing that high-quality statutory internal auditors reduce risks in financial markets.

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.

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.

scholarly journals Does D&O insurance matter for stock price crash risk? Evidence from an Asian emerging market

2019 ◽  
Vol 3 (1) ◽  
pp. 34-46
Author(s):  
Ming-Te Lee ◽  
Kai-Ting Nien
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Emerging Market ◽  
Insurance Coverage ◽  
Crash Risk ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

Purpose The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk. Findings The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk. Originality/value Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.

Managerial ability and stock price crash risk – the role of managerial overconfidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jiaxin Liu ◽  
Dongliang Lei
Keyword(s):  
Stock Price ◽  
Joint Effect ◽  
Bad News ◽  
Crash Risk ◽  
Managerial Ability ◽  
Material Weakness ◽  
Content Type ◽  
Belief Heterogeneity ◽  
The Board Of Directors ◽  
Managerial Overconfidence

Purpose This paper aims to examine the relation between managerial ability and stock price crash risk, conditional on managerial overconfidence. In addition, conditional on managerial overconfidence, the authors investigate the effect of managerial ability on firms’ choice of bad news hoarding channels, which result in a stock price crash. Design/methodology/approach Using a sample of 24,289 firm-years from companies listed on Compustat and CRSP from 1994 to 2018, the authors conduct panel regression analysis. Findings The authors find that managerial ability is positively associated with stock price crash risk only when managerial overconfidence is high. Furthermore, the authors find that managerial ability seems to exacerbate (attenuate) the bad news withholding by the overconfident managers using the earnings guidance (earnings management) channel. The authors find limited evidence that high-ability managers are likely to withhold bad news through the overinvestment channel and “other channels” when managers are overconfident. Finally, the authors find that the joint effect of managerial overconfidence and managerial ability on firms’ crash risk is more pronounced when there is a material weakness in firms’ internal controls, high investor belief heterogeneity and high information asymmetry. However, this effect appears to dissipate during the recent financial crisis in 2008. Originality/value This research reveals that managerial ability is costly to firms by engendering bad news hoardings and stock price crash risk when managers are overconfident. It also sheds light on how managerial overconfidence and managerial ability affect managers’ choice of bad news withholding channels and stock price crash risk. Finally, the paper is of practical value to the board of directors in selecting the prospective executives.

Managerial overconfidence, firm transparency, and stock price crash risk

2019 ◽  
Vol 10 (3) ◽  
pp. 271-296
Author(s):  
Quanxi Liang ◽  
Leng Ling ◽  
Jingjing Tang ◽  
Haijian Zeng ◽  
Mingming Zhuang
Keyword(s):  
Stock Price ◽  
Fixed Effects ◽  
Multiple Linear Regression Model ◽  
Chief Executive ◽  
Bad News ◽  
Good News ◽  
Crash Risk ◽  
Fixed Effects Model ◽  
Content Type ◽  
Managerial Overconfidence

Purpose The purpose of this paper is to empirically analyze whether and how managerial overconfidence affects stock price crash risk. Design/methodology/approach Based on a large sample of Chinese non-state-owned firms from 2000 to 2012, this study employs methods including multiple linear regression model, Heckman two-stage treatment effect procedure, firm fixed effects model and event study to clarify the causality relationship between managerial overconfidence and crash risk. Findings The authors find that firms with overconfident managers (chief executive officer or board chairs) are more likely to experience future stock price crashes than firms with non-overconfident managers. The effect of overconfidence on crash risk is more pronounced for firms with low transparency, suggesting that firm opacity facilitates overconfident managers’ bad news hoarding activities, which, in turn, increases stock price crash risk. The authors also show evidence that overconfident managers tend to disclose good news in a timely manner. Originality/value The authors add to the growing literature on stock price crash risk. Specifically, the authors find that the cognitive bias of board chair plays an important role in the bad news hoarding activities, thereby increasing the likelihood of stock price crash. This study also contributes to the literature that addresses the effects of managerial overconfidence on corporate finance issues.

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 ESG Disclosures and Stock Price Crash Risk

2021 ◽  
Vol 14 (2) ◽  
pp. 70 ◽  
Author(s):  
Rio Murata ◽  
Shigeyuki Hamori
Keyword(s):  
Dynamic Model ◽  
Stock Price ◽  
The United States ◽  
Crash Risk ◽  
Firm Level ◽  
Market Participants ◽  
Major Market ◽  
Market Index ◽  
Index Components ◽  
The Relationship

In this study, we investigate the relationship between environmental, social, and governance (ESG) disclosures and stock price crash risk. A stock price crash is a dreadful event for market participants. Thus, exploring stock price crash determinants is helpful for investment decisions and risk management. In this study, we use samples of major market index components in Europe, the United States, and Japan to perform regression analyses, after controlling for other potential stock price crash determinants. We estimate static two-way fixed-effect models and dynamic GMM models. We find that coefficients of firm-level ESG disclosures are not statistically significant in the static model. ESG disclosure coefficients in the dynamic model are not statistically significant in the U.S. market sample. On the other hand, coefficients of ESG disclosure scores in the dynamic model are statistically significant and negative in the European and Japanese marker sample. Our findings suggest that ESG disclosures lower future stock price crash risk; however, the effect and predictive power of ESG disclosures differ among regions.

Effects of air mattress pressure on sleep quality and physiological responses: comparison of shoulder and hip pressure relief

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yoon Jeong Baek ◽  
Seung-Hyun Kim ◽  
Sayup Kim ◽  
Eui-Sang Yoo ◽  
Joo-Young Lee
Keyword(s):  
Sleep Quality ◽  
Surface Pressure ◽  
Pressure Control ◽  
Body Region ◽  
High Quality ◽  
Pressure Relief ◽  
Content Type ◽  
Quality Sleep ◽  
Improve Sleep Quality

PurposeThe purpose of the present study was to evaluate the effect of air mattress pressure on sleep quality.Design/methodology/approachTen young healthy males participated in all hard surface [AH], shoulder soft [SS] and shoulder and hip soft mattress [SHS] conditions. The surface pressure for SS and SHS were set at their preferred levels.FindingsThe results showed that sleep efficiencies were over 95% for all the three conditions; there were no significant differences in individual sleep variables among the three conditions, but overall sleep quality was better for SS than AH (p = 0.065); heart rates during sleep was greater for AH than the other two conditions (p < 0.1); and a stronger relationship between clothing and bed microclimate humidity were found for SS and SHS than that for AH.Research limitations/implicationsThese results indicated that the both pressure relief air mattresses that were set at their own preferred levels provided high quality sleep with no marked differences.Practical implicationsAir pressure relief mattresses can improve sleep quality of healthy individuals during sleep at night. The results can be used to understand appropriate pressure distribution on surface mattress according to body region, and also to develop algorithms to provide optimum sleep using mattresses with surface pressure control by body region.Originality/valueThe present study found that the shoulder and/or hip pressure relief air mattresses that were set at their own preferred levels provided high quality sleep with no marked differences.

Researchers' judgment criteria of high-quality answers on academic social Q&A platforms

2020 ◽  
Vol 44 (3) ◽  
pp. 603-623 ◽  
Author(s):  
Lei Li ◽  
Chengzhi Zhang ◽  
Daqing He ◽  
Jia Tina Du
Keyword(s):  
Design Methodology ◽  
Information Science ◽  
Value Added ◽  
Quality Criteria ◽  
Social Networking Site ◽  
Library And Information Science ◽  
High Quality ◽  
Content Type ◽  
Second Stage

PurposeThrough a two-stage survey, this paper examines how researchers judge the quality of answers on ResearchGate Q&A, an academic social networking site.Design/methodology/approachIn the first-stage survey, 15 researchers from Library and Information Science (LIS) judged the quality of 157 answers to 15 questions and reported the criteria that they had used. The content of their reports was analyzed, and the results were merged with relevant criteria from the literature to form the second-stage survey questionnaire. This questionnaire was then completed by researchers recognized as accomplished at identifying high-quality LIS answers on ResearchGate Q&A.FindingsMost of the identified quality criteria for academic answers—such as relevance, completeness, and verifiability—have previously been found applicable to generic answers. The authors also found other criteria, such as comprehensiveness, the answerer's scholarship, and value-added. Providing opinions was found to be the most important criterion, followed by completeness and value-added.Originality/valueThe findings here show the importance of studying the quality of answers on academic social Q&A platforms and reveal unique considerations for the design of such systems.

scholarly journals An Adaptive Bitrate Switching Algorithm for Speech Applications in Context of WebRTC

2021 ◽  
Vol 17 (4) ◽  
pp. 1-21
Author(s):  
Mohannad Alahmadi ◽  
Peter Pocta ◽  
Hugh Melvin
Keyword(s):  
Real Time ◽  
Data Exchange ◽  
Quality Of Experience ◽  
End User ◽  
High Quality ◽  
Content Type ◽  
Switching Algorithm ◽  
Wide Range ◽  
The Impact

Web Real-Time Communication (WebRTC) combines a set of standards and technologies to enable high-quality audio, video, and auxiliary data exchange in web browsers and mobile applications. It enables peer-to-peer multimedia sessions over IP networks without the need for additional plugins. The Opus codec, which is deployed as the default audio codec for speech and music streaming in WebRTC, supports a wide range of bitrates. This range of bitrates covers narrowband, wideband, and super-wideband up to fullband bandwidths. Users of IP-based telephony always demand high-quality audio. In addition to users’ expectation, their emotional state, content type, and many other psychological factors; network quality of service; and distortions introduced at the end terminals could determine their quality of experience. To measure the quality experienced by the end user for voice transmission service, the E-model standardized in the ITU-T Rec. G.107 (a narrowband version), ITU-T Rec. G.107.1 (a wideband version), and the most recent ITU-T Rec. G.107.2 extension for the super-wideband E-model can be used. In this work, we present a quality of experience model built on the E-model to measure the impact of coding and packet loss to assess the quality perceived by the end user in WebRTC speech applications. Based on the computed Mean Opinion Score, a real-time adaptive codec parameter switching mechanism is used to switch to the most optimum codec bitrate under the present network conditions. We present the evaluation results to show the effectiveness of the proposed approach when compared with the default codec configuration in WebRTC.

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