scholarly journals Aftershock: CEO Great Famine Experience and Stock Price Crash Risk

2021 ◽  
Vol 12 ◽  
Author(s):  
Fang Cheng ◽  
Wenjuan Ruan ◽  
Guoliang Huang ◽  
Liangliang Zhang
Keyword(s):  
Early Life ◽  
Stock Price ◽  
Traumatic Event ◽  
Bad News ◽  
Traumatic Experience ◽  
Traumatic Experiences ◽  
Crash Risk ◽  
Natural Experiments ◽  
Healthy Development ◽  
Great Famine

This study examines the effect of CEOs’ early-life traumatic experience on firm-specific stock price crash risk. Drawing on the idea of natural experiments, we take the Great Famine in China as an external traumatic event which cannot be selected or controlled by human. The analysis points out that compensation psychology and irrational defense psychology after the trauma of Great Famine are important factors that cause CEOs to hoard bad news. Based on a large sample of Chinese companies from 2007 to 2017, we find evidence that CEOs who experienced the Great Famine during early-life tend to hoard bad news, which result in higher stock price crash risk. The more severe and prolonged the Great Famine that the CEOs experienced, the greater the effect of this traumatic experience. CEOs decision-making power enhances the adverse effect of CEOs’ early-life traumatic experiences on crash risk. Findings of this study contributes to the literature by providing a new explanation for the stock price crash risk, which is of great significance for the sustained and healthy development of capital markets.

CEO Early-Life Disaster Experience and Stock Price Crash Risk

2019 ◽  
Author(s):  
Yangyang Chen ◽  
Qingliang Fan ◽  
Xin Yang ◽  
Leon Zolotoy
Keyword(s):  
Early Life ◽  
Stock Price ◽  
Crash Risk ◽  
Disaster Experience

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.

CEO early-life disaster experience and stock price crash risk

2021 ◽  
pp. 101928
Author(s):  
Yangyang Chen ◽  
Qingliang Fan ◽  
Xin Yang ◽  
Wang Yanan ◽  
Leon Zolotoyt
Keyword(s):  
Early Life ◽  
Stock Price ◽  
Crash Risk ◽  
Disaster Experience

scholarly journals SUBJEKTYVAUS TRAUMINIO PATYRIMO IR POTRAUMINIO AUGIMO BEI POTRAUMINIO STRESO SUTRIKIMO SĄSAJOS

Psichologija ◽  
2007 ◽  
Vol 35 ◽  
pp. 7-18
Author(s):  
Evaldas Kazlauskas ◽  
Irma Šimėnaitė ◽  
Danutė Gailienė
Keyword(s):  
Psychometric Properties ◽  
Posttraumatic Growth ◽  
Posttraumatic Stress ◽  
Traumatic Event ◽  
Life Time ◽  
Human Mind ◽  
Traumatic Experience ◽  
Traumatic Experiences ◽  
Impact Of Event Scale ◽  
Event Scale

Potrauminis augimas yra teigiami psichologiniai padariniai po traumos, kurie pasireiškia savęs suvokimo, požiūrio į pasaulį ir tarpasmeninių santykių pokyčiais (Tedeschi and Calhoun, 1996). Pozityvūs procesai po traumos dar tik pradedami tyrinėti, todėl nėra žinoma, kokios yra potrauminio augimo (PTA), trauminio įvykio intensyvumo ir potrauminio streso sutrikimo (PTSS) sąsajos. Siekiant įvertinti ryšius tarp trauminės patirties ir PTSS bei PTA, buvo ištirti 104 studentiško amžiaus jaunuoliai, per savo gyvenimą patyrę bent vieną trauminį įvykį. Tako analizės modelis parodė, kad subjektyvus trauminės patirties intensyvumasyra veiksnys, reikšmingai prognozuojantis tiek PTSS, tiek PTA. Kuo reakcija į trauminį įvykį yra stipresnė, tuo labiau išreikšti PTSS ir PTA požymiai. Nustatytas nestiprus teigiamas ryšys tarp PTSS ir PTA parodė, kad, norėdami geriau suprasti, kaip jaučiasi asmenys po traumos, turime atsižvelgti ir į teigiamus (PTA), ir į neigiamus (PTSS) traumos padarinius. Pagrindiniai žodžiai: trauma, potrauminis stresas, potrauminis augimas.RELATIONSHIP BETWEEN TRAUMA EXPOSURE, POSTTRAUMATIC GROWTH AND POSTTRAUMATIC STRESS DISORDEREvaldas Kazlauskas, Irma Šimėnaitė, Danutė Gailienė SummaryObjectives: The notion that traumatic experiences may have an impact on human mind is very old. Recent developments in psychotraumatology shifted the approach to a trauma from a purely negative to a more positive perspective. Research confirmed that traumatic events may lead not only to posttraumatic stress or other disorders, but also to positive changes. The present research was based on the concept of Posttraumatic Growth developed by Calhoun and Tedeschi (1996), which is widely known in the field of traumatic stress. Although the number of Posttraumatic Growth (PTG) research is growing rapidly, little is known about Posttraumatic Growth predictors. The present research was designed to find out the links between Posttraumatic Growth, Posttraumatic Stress and initial reactions to the traumatic event. We set up two goals of the study: 1) evaluation of how initial traumatic reactions predict PTG, and 2) assessment of links between PTG and PTSD.Methods: A group of 104 university students exposed to at least one life-time traumatic event participated in the study. The average time gap between exposure to a traumatic event and the time of research was 43 months. The intensity of initial reactions to a traumatic event was measured using a 10-item selfrating inventory developed by the authors of the present study. The Subjective Traumatic Experience (STE) inventory consisted of items covering cognitive, emotional and physiological reactions to a traumatic event. Posttraumatic Growth was measured using the Posttraumatic Growth Inventory (PGI) developed by Tedeschi and Calhoun (1996). Previous research showed satisfactory psychometric properties of the Lithuanian version of PGI (Gailienë & Kazlauskas, 2005). Posttraumatic Stress Disorder was measured using the Lithuanian version of Impact of Event Scale – Revised (IES-R). A recent validation of the IES-R on Lithuanian population showed its good psychometric properties (Kazlauskas et al., 2006).

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.

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.

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.

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