The Empirical Test of the relationship between information asymmetry, Overvalued Equities and Stock Price Crash Risk

Subject Areas : Financial Econometrics

Mirfeiz  Fallahshams ¹ (Department of Business Management, Central Tehran Branch , Islamic Azad University, Tehran, Iran)
Zahra  Razmian Moghadam ² (Tehran shomal Branch, Islamic Azad university, Tehran, Iran)

Received: 2019-07-08 Accepted : 2019-12-31 Published : 2023-07-01

Keywords: stock price Crash risk, Information Asymmetry, Equity overvaluation,

Abstract :

This study examines empirically the effect of equity overvaluation on future stock price crash risk in companies with greater information asymmetry. Using the information asymmetry and crash risk indicators, the question that whether overvalued firms are more prone to future crash risk is investigated. Accordingly, the first purpose of this study is to investigate the relation between overvaluation and the future stock price crash risk.With the increase of information asymmetry between a firm and the market, managers have more abilities and opportunities to withhold bad news and accelerating the release of good news. As a result, it is expected that the information asymmetry between managers and investors increases future stock price crash risk.In so doing, we identify one main hypothesis and three subsidiary ones and the data of 111 listed companies of Tehran Stock Exchange for the period between 2009 and 2017 were analyzed and A panel data approach has been used to test of research hypotheses.According to the results, there is a positive and significant relationship between the overvaluation and the future stock price crash risk of companies which are operating in monopolistic markets and this relation intensified by the information asymmetry.

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