Presented a model for explaining the stock price crash risk with mediating role of agency cost

Document Type : Research Paper

Authors

1 PhD Candidate in Financial Engineering, University of Sistan and Baluchestan, Zahedan, Iran. mohamadmahdi@pgs.usb.ac.ir

2 Assistant Professor, University of Sistan and Baluchestan, Zahedan, Iran. vazife@mgmt.usb.ac.ir

3 Professor, University of Tehran, Tehran, Iran. rtehrani@ut.ac.ir 4. Assistant Professor, Shahroud University of Technology, Shahroud, Iran.

Abstract

Journal of Accounting Advances, (2020) 12(1):
DOI: 10.22099/JAA.2021.35506.1949
 
 
 
 
 
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
 
 
 
 
 
 
Presented Model for Explaining the Stock Price Crash Risk with Mediating Role of Agency Cost
Mohamad Mehdi1, Zahra Vazife2*, Reza Tehrani3, Seyed Mojtaba Mirlohi4
 
 
PhD Candidate in Financial Engineering, University of Sistan and Baluchestan, Zahedan, Iran. mohamadmahdi@pgs.usb.ac.ir
Assistant Professor, University of Sistan and Baluchestan, Zahedan, Iran. vazife@mgmt.usb.ac.ir
Full Professor, University of Tehran, Tehran, Iran. rtehrani@ut.ac.ir
Assistant Professor, Shahroud University of Technology, Shahroud, Iran. mirlohism@shahroodut.ac.ir
 
 
 
 
 
 
ARTICLE INF
 
 
ABSTRACT
 
 
 
 
 
Received: 2019-11-09
Accepted: 2021-01-06
 
 
 
The stock price crash risk is always the inhibiting factor to attract liquidity on the capital market. Tehran stock exchange is at a lower level in terms of efficiency. Sudden changes of stock return have been observed. This will lead to liquidity transfer to non–productive markets including the Exchange of exchange and gold. The aim of this paper is to model the stock price crash risk in Tehran stock exchange. In this regard, the effect of factors such as cash management, financial distress, and disclosure quality and board composition were measured in the stock price crash risk. Also, the agency cost is considered as an intermediary variable. The statistical population of the companies listed in Tehran stock exchange is in the period from 1392 to 1396. To test the hypotheses, multivariate linear regression analysis and structural equation method are used. The results of the hypotheses tests show that, apart from the financial distress of other studied variables, the stock price crash risk is effective
 
 
 
 
 
* Corresponding author:
 
Zahra Vazif
 
Assistant Professor, University of Sistan and Baluchestan, Zahedan, Iran.
Email:       vazife@mgmt.usb.ac.ir
 
 
 
 
 
 
1- Introduction
As companies grow up, there is no possibility of all the owners in the company for that purpose. This will cost the agency. In the absence of complete transparency of financial reporting, there will be a chance to exploit managers to hide negative information about the company to maintain their jobs and reputation. If the company has no liquidity, it does not succeed in using short - term investment opportunities. The continuation of this state is accompanied by the falling price of the company's shares and the decline of its value.
It is vital to identify the factors affecting stock price crash risk in Tehran Stock Exchange. Because the Iranian capital market is exposed to many dangers due to being a young market. In this model, the quality disclosure quality (risk assessment and corporate information disclosure), board of directors (variables of corporate governance mechanism), the cash flow variable, the cash management variable as predictor variables and agency cost variable (motivational variable and managerial characteristics) are considered as mediating variables.
 
2- Hypothesis
Research hypotheses are designed as follows.
1- Cash management has a significant effect on the stock price crash risk by mediating the role of agency cost.
2-The board composition with the mediating role of agency cost has a significant effect on the stock price crash risk.
3-The quality of disclosure of information on the role of mediating agency cost has a significant effect on the stock price crash risk.
4-The financial disturbances with the mediating role of agency cost has a significant effect on the stock price crash risk.
 
3- Methods
The present study is applied in terms of purpose, practical research and in terms of data collection method, post - event research method, which is carried out using multivariate regression method and econometric models. The study population studied in this study comprises the companies listed in Tehran Stock Exchange from 1392 to 1396 and the selected sample of the research is companies that have the following set of conditions:
1-By the end of 1393, the company’s name is listed in the companies listed in Tehran Stock Exchange. 2-Their financial year ends in March and has not changed during the study. 3- The company did not perform any sorption, consolidation, analysis operations during the study period. 4- The corporate symbol is not off a month or so. 5-The company’s financial information is available during the period. 6-There are no insurance, bank and insurance companies.
The present research data were extracted from Tehran Stock Exchange (TSE) and other related bases. The final analysis of the collected data was done by Excel, Matlab, Eviews, smartpls.
 
4- Results
To reveal the latent variables of research, obvious variables were used. Cash management latent variable (cash adjustment speed, cash surplus), latent variable of the board composition (total number of members, members of duty and non - duty), the latent variable of disclosure of information (reliability, timeliness), the latent variable of the financial distress (loss, negative working capital, the simultaneous existence of negative working capital and loss in the previous year), the latent variable of agency cost (leverage ratio, the ratio of assets, the ratio of assets, and the latent variable   stock price crash risk  variable (by three factors) was revealed. The results indicate that the composition of the board, cash management and disclosure quality have direct and significant effect on agency cost. This means that the agency cost decreases with increasing board composition, cash management and disclosure quality. But financial distress has no direct and significant effect on agency cost. Also agency cost has a positive and significant effect on stock price crash risk. This means that the higher the agency cost, the stock price crash risk also increases.
 
5- Conclusion
Optimal management of cash, transparent and proper disclosure of company information, corporate governance (board composition) are among the factors that prevent stock price crash risk. They risk sudden fluctuations in stock returns of companies' stock returns. Market activists and managers are suggested to pay special attention to these factors to witness sudden liquidity of liquidity from the stock market and provide a suitable environment for micro - investors. Market managers are able to reduce the stock price crash risk   by setting rules such as increasing transaction transparency, transparency of financial reporting and disclosure of corporate information. Corporate managers also keep the cash flow and optimal value of it at the point of equilibrium and direct their board to no duty- binding members. It also enhances disclosure of information in terms of disclosure quality and timely disclosure, which can control the cost of the agency and manage the stock price crash risk.
 
Keywords: Stock price crash risk, agency cost, cash management, disclosure quality.
 
 
 
 
Journal of Accounting Advances, (2020) 12(1): 1-27

Keywords

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History

  • Receive Date: 25 November 2019
  • Revise Date: 06 January 2021
  • Accept Date: 06 January 2021

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