scholarly journals OPAQUE FINANCIAL REPORTS AND STOCK PRICE CRASH RISK IN INDONESIA

2014 ◽  
Vol 13 (1) ◽  
Author(s):  
Lukas Purwoto ◽  
Eduardus Tandelilin
Keyword(s):  
Corporate Governance ◽  
Information Disclosure ◽  
Stock Price ◽  
Negative Information ◽  
Bad News ◽  
Crash Risk ◽  
Binary Outcome ◽  
Financial Reports ◽  
Listed Firms ◽  
Lack Of Information

Stock price crash risk is explained in perspective of corporate governance which refers to the lack of information disclosure. This research investigates the effects of opaque financial reports on stock price crash risk of Indonesia-listed firms from 2005 to 2008.The results show that the degree of crash risk is high. Analyses of binary outcome models, which are controlled by company characteristics, show that crash risk is higher in firms with more opaque financial reports. These results of analysis validate the findings of Hutton et al. (2009) so consistent that insiders or managers hide bad news or negative information when submitting poor financial reports.

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.

CORPORATE VALUATION SPURRED BY INFORMATION TRANSPARENCY IN AN EMERGING ECONOMY

2021 ◽  
Author(s):  
TRAN THAI HA NGUYEN ◽  
WING-KEUNG WONG ◽  
GIA QUYEN PHAN ◽  
DANG THANH MINH TRAN ◽  
MASSOUD MOSLEHPOUR
Keyword(s):  
Corporate Governance ◽  
Stock Prices ◽  
Information Disclosure ◽  
Stock Price ◽  
Generalized Method Of Moments ◽  
Emerging Economy ◽  
Crash Risk ◽  
Information Transparency ◽  
Corporate Valuation ◽  
Negative Effect

The stock price crash can result from lacking information transparency, especially in emerging economies characterized by weak corporate governance and high volatility. This study approaches corporate information transparency through the crash risk of stock prices on the Vietnamese market, develops a model that reflects the effect of information disclosure on corporate valuation, and employs two-step system generalized method of moments (S-GMM) estimation for panel data to deal with endogenous problems. This paper finds that the crash risk of stock price, referred to as the low level of information disclosure, creates a significantly negative effect on corporate valuation, expressing that information asymmetry causes serious issues for corporate prospects in the context of an emerging economy. Thus, corporates are suggested to enrich their information disclosure through periodic reports as a crucial mechanism to improve their transparency, reduce stock price crash risk, and enhance their valuation. This study also proposes related recommendations to enhance corporate governance and finance supervisory to maintain sustainability in the future.

scholarly journals The Effect Of Ownership Structure On Future Stock Price Crash Risk: Korean Evidence

2018 ◽  
Vol 34 (2) ◽  
pp. 355-368 ◽  
Author(s):  
Soo Yeon Park ◽  
Younghyo Song
Keyword(s):  
Ownership Structure ◽  
Stock Price ◽  
Foreign Ownership ◽  
Negative Information ◽  
Bad News ◽  
Crash Risk ◽  
Managerial Ownership ◽  
Corporate Ownership ◽  
Corporate Ownership Structure ◽  
Korean Market

This paper examines the effect of ownership structure on firm-specific stock price crash risk using listed firm (KOSPI) data in Korea. Prior literatures suggest that corporate governance has an impact on the level of disclosure and the quality. Managers may stockpile negative information about the company, but when such accumulated bad news crosses a threshold, the negative information suddenly becomes publicly available and a stock price crash is observed (Hutton, Marcus, & Tehranian 2009). Prior studies have documented the determinants of future stock price crash risk (Jin & Myer 2006; Hutton et al. 2009; Kim, Li, & Zhang 2011; Hamm, Li, & Ng 2013; Xu, Jiang, Chan, & Yi 2013; Jo, Moon, & Choi 2015; Kim & Zhang 2016). However, it is hard to find the papers about corporate ownership and future stock price crash risk at the term of determinants of the risk. Compare to some financially advanced countries where ownership and management are effectively separated, there is no clear distinction between ownership and management in Korea. Using the percentage of managerial ownership and that of foreign ownership as proxies for ownership structure and measures for future stock price crash risk which was used by Callen and Fang (2013, 2015) and Kim and Zhang (2016), we conducted an empirical analysis examining the link between corporate ownership structure and companies’ subsequent stock price crash risk. We collect 4,294 firm-year observations listed on Korean market from 2002 to 2015, and we use the measures of firm-specific stock price crash risk based on Callen and Fang (2013, 2015) to examine the relation between corporate ownership structure and subsequent stock price crash risk. From the empirical tests, the percentage of managerial ownership is negatively associated with future stock price crash risk. It implies that managerial ownership increases to align the interests of shareholders and managers, it could alleviate the agency problem between them (Jensen & Meckling 1976), helping to resolve information asymmetry and prevent bad news from being withheld, ultimately lowering future stock price crash risk. In addition, we find that higher foreign ownership significantly weakens the negative relation between the percentage of managerial ownership and future stock price crash risk. We interpret this results that the negative side of foreign ownership failed to effectively reduce agency costs, weakening the negative correlation between managerial ownership and future stock price crash risk. Our study may shed some light on the understanding of the ownership structure as a determinant of future stock price crash risk to firms and investors who want to handle crash risk in the stock market.

Forward-Looking Information Disclosure and Corporate Governance: Empirical Evidence from Year 2013 Listed Firms in Ghana

2018 ◽  
Vol 17 (4) ◽  
pp. 311-339 ◽  
Author(s):  
Ben K. Agyei-Mensah
Keyword(s):  
Corporate Governance ◽  
Information Disclosure ◽  
Stock Exchange ◽  
Annual Reports ◽  
Significant Variable ◽  
Financial Reports ◽  
Listed Firms ◽  
Future Performance ◽  
Ghana Stock Exchange ◽  
Forward Looking

Abstract This study investigated the influence of corporate governance on the disclosure of forward looking information by firms listed on the Ghana Stock Exchange. The forward-looking information used in this study were obtained from statements made for management in either the Managing Director or Board Chairman’s reports regarding future operating outcomes. The results of the extent of disclosure of forward looking information, mean of 35%, indicate that most of the firms listed on the Ghana Stock Exchange did not disclose sufficient forward looking information in their annual reports. The low level (35%) of forward looking information disclosure will also make it very difficult for the firms’ stakeholders to determine future performance of the company. In a country where corruption, even within the judiciary, is high one way of hiding corrupt practices is to hide information from the users of the financial reports. The results of the regression analysis indicate that board ownership concentration is the significant variable that explain the level of forward looking information disclosure.

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.

Power Distance, Political Uncertainty, and Stock Price Crash Risk: International Evidence

2021 ◽  
Author(s):  
Qiaoling Su ◽  
Xunchang Zhang ◽  
Jianming Ye
Keyword(s):  
Stock Price ◽  
Power Distance ◽  
Cultural Dimensions ◽  
Crash Risk ◽  
Corporate Disclosure ◽  
National Elections ◽  
Political Event ◽  
Listed Firms ◽  
Political Events ◽  
The Government

This study tests the effect of unbalanced power distance (PD) (i.e., Hofstede’s cultural dimensions PD index) and individual stock price crash risk. We examine the stock price behavior of listed firms in 37 countries from 2004 to 2016 and use multivariate analyses to document that societal PD is important in explaining firms’ propensity to release accounting information. This propensity suggests a psychological tendency regarding timing management, particularly for bad news. As countries with large PD prefer to keep things under control, the result is fewer unexpected stock price crashes during the long windows between election events. However, because large-PD countries focus their markets on maintaining temporary peace before and during periods of political events (i.e., national elections), crash risk increases after the political event window. Consistent with these predictions, we find that in large-PD countries, companies generally have less incentive to hide negative information and thus generate stock price crashes. This situation is substantially changed during the postpolitical windows, when firms and ways of spreading information are more controlled by the government. Our findings suggest that formal mechanisms alone are insufficient to explain the behaviors of corporate disclosure that are entangled with informal instruments.

scholarly journals Performance, corporate governance and new regulation

2017 ◽  
Vol 9 (18) ◽  
Author(s):  
Heriberto García
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Financial Market ◽  
Information Disclosure ◽  
Potential Growth ◽  
Listed Firms ◽  
Risk Return ◽  
Corporate Governance Code ◽  
Governance Practices ◽  
The Relationship

Abstract. After the adoption of the Corporate Governance Code (Code) in Mexico, many companies increased financial performance and the leveraged during the following five years; we investigated the effect of how those firms improved the corporate governance practices and how was translated into better risk return company. We analyzed how and where better corporate governance practices affects performance and what was the relationship with Transparency, New Regulation and Governance Practices. Also we explored the gaps between transparency and information disclosure of Mexican Firms listed in U.S stockexchange and non U.S listed firms our findings were related to the potential growth of the Mexico Financial Market, Law and Finance.Keywords: corporate governance, financial performance, regulationResumen. Después de la adopción del Código de Gobierno Corporativo en México, algunas compañías incrementaron el desempeño financiero y el uso de deuda durante los siguientes cinco anos, nuestra investigación se enfoca en como dichas compañías mejoraron sus prácticas de gobierno corporativo y como estas prácticas se han traducido en un mejor relación de riesgo y rendimiento. En esta investigación exploramos cómo y en dónde mejores prácticas de gobierno corporativo afectan el desempeño y qué relación tiene con laTransparencia, Nuevas Regulaciones y prácticas de Gobierno Corporativo. Con lo anterior también identificamos aquellas compañías que cotizan fuera de México para identificar potenciales diferencias en dichas prácticas.Palabras clave: desempeño financiero, gobierno corporativo, regulación

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.

Abnormally long audit report lags and future stock price crash risk: evidence from China

2019 ◽  
Vol 15 (4) ◽  
pp. 611-635
Author(s):  
Ahsan Habib ◽  
Hedy Jiaying Huang
Keyword(s):  
Internal Control ◽  
Stock Price ◽  
Large Scale ◽  
Crash Risk ◽  
Research Database ◽  
Audit Report ◽  
Content Type ◽  
Audit Opinion ◽  
Listed Firms ◽  
International Investors

PurposeAlthough a substantial body of literature investigates the determinants of audit report lag (ARL), scant empirical evidence exists on the consequences of ARL. The purpose of this paper is to examine the association between abnormally long ARL and future stock price crash risk.Design/methodology/approachThis quantitative study employed a large scale (14,445 firm-year observations) of annual financials, audit and ownership information for the Chinese listed companies during 2002–2013 which were retrieved from the China Stock Market and Accounting Research database.FindingsThis study finds evidence that abnormally long ARL increases the risk of a future stock price crash. Furthermore, the study finds that this adverse consequence is more pronounced for firms with a poor internal control environment.Practical implicationsRecently literature started to explore the consequences of abnormal ARL such as going concern audit opinion and restatements in the subsequent periods. This paper reveals that abnormal ARL has consequences for investor wealth losses as well. This is relevant in China, where the ongoing economic growth has attracted, and will continue to attract, a growing body of domestic and international investors. Understanding what factors could expose investors to wealth losses is of paramount importance for allocating their scarce capital.Originality/valueThis study extends the scant literature on the consequences of ARL, and provides useful insights for the Chinese regulatory authorities when considering the appropriateness of the current filing deadline for listed firms.

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