Investigation the Impact of Earning Smoothing and Financial Information Transparency on Stock Price Crash Risk

Subject Areas : Journal of Investment Knowledge

Leila Barati ¹ ( Ph.D. Student of Financial - Banking, Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran-Iran )
Alireza Heidarzadeh Hanzaei ² ( Assistant Prof. Dr. , Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran )

Received: 2018-12-15 Accepted : 2019-07-27 Published : 2021-09-23

Keywords: earning Smoothing, Stock Price Crash Risk, Financial Information Transparency,

Abstract :

The purpose of this study is to examine the impact of Earning Smoothing and Financial Information Transparency on Stock Price Crash Risk. In order to measure the financial information transparency, stock price crash risk and earning smoothing, respectively Donelson et al. research (2010) and Len et al. (2012), Houghton et al. research (2014) and the model of Chen et al. (2012) and Tucker and Zarowin (2006) through evaluating the correlation between changes in accruals (unusual) and changes in pre-managed profits have been used. A total of 196 companies listed in the Tehran Securities Exchange have been selected during the period of six years from 2013 to 2018 according to the society's screening conditions. In addition 1176 company-year observations have been included in the statistical analyzes. The results of the research show that Earning Smoothing has a significant positive effect on the crash risk and Financial Information Transparency has a significant negative effect on the crash risk. Indeed, managers who are willing to smooth the reported earnings and create a more stable flow to support a higher level of profits, are more exposed to the stock price crash risk. Company size, financial leverage and institutional shareholders have a significant negative effect on the stock price crash risk, and the company age has a significant positive effect on the stock price crash risk. But the market value to book value ratio and Sale Standard Deviation do not have a significant effect on the stock price crash risk.

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