The Impact of Political Connections on Stock Price Crash Risk with an Emphasize on Product Market Competition in Tehran Stock Exchange listed companies

Subject Areas : Journal of Investment Knowledge

Jamal Bahri Sales ¹ , Mohammadreza Ebrati ²

1 - Assistant Professor, Department of Accounting, Urmia Islamic Azad University
2 - student

Received: 2017-12-19 Accepted : 2018-04-08 Published : 2019-03-21

Keywords: Political connections, Stock Price Crash Risk, Product Market Competition,

Abstract :

The purpose of this study is to investigate the effect of political connections on stock price crash risk in 110 listed companies in Tehran Stock Exchange for the period 2011-2016. To test the research hypotheses, the panel data model was used. In order to measure the stock price crash risk, two indicators of the negative conditional return skewness and down-to-up volatility were used. The results showed that political connections has a positive impact on stock price crash risk. In the sense that executives show good face from position firms by hoarding bad news and, this behavior of managers in the long run will lead to a stock price crash. The companies also split through the advertising cost into two groups of companies with high and low information asymmetry, and the findings showed that the positive impact of political connections on stock price crash risk is more severe in companies with high information asymmetries.    

References:

*       ابراهیمی، سید کاظم. بهرامی نسب، علی. حسن زاده، مهدی. (1396). واکاوی کیفیت گزارشگری مالی و اجتناب مالیاتی در پرتو مالکیت دولتی و ارتباطات سیاسی، مدیریت سازمان‌های دولتی، دوره 5، شماره 2، صص 161-151.

*       بادآور نهندی، یونس. تقی‌زاده خانقاه، وحید. (1396). تأثیر پرداخت سود سهام و عدم انتشار اخبار بد بر خطر سقوط قیمت سهام با تأکید بر عدم تقارن اطلاعاتی، بررسی‌های حسابداری و حسابرسی، دوره 24، شماره 1، صص 40-19.

*       رضایی، فرزین. ویسی حصار، ثریا. (1393). اثر روابط سیاسی با دولت بر رابطة بین تمرکز مالکیت با کیفیت گزارشگری مالی و هزینۀ سهام عادی، بررسی‌های حسابداری و حسابرسی، دوره 21، شماره 4، صص 470-449.

*       عباسی، ابراهیم. شهرتی، علی. قدک فروشان، مریم. (1393). بررسی تاثیر محافظه‌کاری حسابداری بر خطر سقوط سهام در شرایط عدم تقارن اطلاعاتی در بورس اوراق بهادار تهران، دانش حسابداری، 5 (19): 141-162.

*       نیکومرام، هاشم. بنی‌مهد، بهمن. رهنمای رودپشتی، فریدون.کیایی، علی. (1392). دیدگاه اقتصاد سیاسی و مدیریت سود، حسابداری سلامت، دوره 6، شماره 18، صص 43-31.

*       فغانی، ماکرانی. خسرو. حیدری رستمی، کرامت اله. امین، وحید. (1395). بررسی رابطه میان مسئولیت پذیری اجتماعی و ریسک کاهش قیمت سهام در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران، دانش سرمایه گذاری، دوره 5، شماره 19، صص 284-269.

*       Al-dhamari R, Ku Ismail K N. (2015). Cash holdings, political connections, and earnings quality, International Journal of Managerial Finance, 11(2), 215- 231.

*       Andreou, P.C, Antoniou, C., Horton, J., & Louca, C. (2013). Corporate governance and firm-specific stock price crashes. www.ssrn.com.

*       Boubaker S, Mansali H, Rjiba H. (2014). Large controlling shareholders and stock price synchronicity. Journal of Banking & Finance, 40:80–96.

*       Bushman RM, Piotroski JD, Smith AJ. (2004). What determines corporate transparency? Journal of Accounting Research, 42(2):207–252.

*       Chaney PK, Faccio M, Parsley D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1–2):58–76.

*       Chen, Ch. Kim. J.B. Yao, L. (2017). Earnings smoothing: Does it exacerbate or constrain stock price crash risk?, Journal of Corporate Finance, 42 (February): 36-54.

*       DeFond, Mark L. and Chul W. P. (1999). The Effect of Competition on CEO Turnover, Journal of Accounting and Economics, 27-1, 35-56.

*       Ding S, Jia C, Wilson C, Wu Z. (2015). Political connections and agency conflicts: the roles of owner and manager political influence on executive compensation. Review of Quantitative Finance and Accounting 45(2):407–434.

*       Faccio M, Masulis RW, McConnell J. (2006). Political connections and corporate bailouts, The Journal of Finance 61(6):2597–2635.

*       Fan JP, Wong TJ, Zhang T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2):330–357.

*       Francis BB, Hasan I, Sun X. (2009). Political connections and the process of going public: evidence from China. Journal of International Money and Finance, 28(4):696–719.

*       Francis, B. Hasan, I. Li, L. (2016). Abnormal real operations, real earnings management, and subsequent crashes in stock prices, Review of Quantitative Finance and Accounting, 42 (2):1-44.

*       Gaspar, J. M. and Massa, M. (2006). Idiosyncratic Volatility and Product Market Competition, The Journal of Business, 79 (6): 3125-3152.

*       Gul FA, Kim JB, Qiu AA. (2010). Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: evidence from China. Journal of Financial Economics, 95 (3):425–442

*       Hou, K. and Robinson, D. T. (2006), ‘Industry Concentration and Average Stock Returns’, The Journal of Finance, 61 (4): 1927-1956.

*       Hutton, A.P., Marcus, A.J., & Tehranian, H. (2009). Opaque financial reports, R2, and crash risk. Journal of Financial Economics. 94 (1): 67–86.

*       Huyghebaert N, Wang L. (2012). Expropriation of minority investors in Chinese listed firms: the role of internal and external corporate governance mechanisms. Corporate Governance, 20(3):308–332.

*       Jin L, Myers SC (2006) R2 around the world: new theory and new tests. Journal of Financial Economics 79(2):257–292.

*       Joseph, K., Wintoki, M.B. )2013(. Advertising investments, information asymmetry, and insider gains. Journal of Empirical Finance. 22 (1): 1-15.

*       Kim, J., & Zhang, L. (2015). Accounting conservatism and stock price crash risk: Firm-level evidence. Contemporary Accounting Research, 33 (1):412-441.

*       Kim. J.B., & Zhang, L. (2016). CEO overconfidence and stock price crash risk. Contemporary Accounting Research. 33 (1): 78-114.

*       Lee, W. Wang, L. (2017). Do political connections affect stock price crash risk? Firm-level evidence from China, Review of Quantitative Finance and Accounting, 48 (3): 643-676.

*       Li H, Meng L, Wang Q, Zhou LA. (2008). Political connections, financing and firm performance: evidence from Chinese private firms. Journal of Development Economics, 87(2):283–299.

*       Lin, K. J., Karim, E. K. & Carter, C. (2015). Why does China's stock market have highly synchronous stock price movements? An information supply perspective Advances in Accounting, 31(1), 68-791.

*       Ling, L. Xiaorong, Zh. Quanxi, L. Pingping, S. Haijian, Z. (2016). Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms, Finance Research Letters, 18 (August): 328-333.

*       Piotroski JD, Wong TJ, Zhang T. (2015). Political incentives to suppress negative information: evidence from Chinese listed firms. Journal of Accounting Research, 53(2):405–459.

*       Shen CH, Lin CY. (2015). Political connections, financial constraints, and corporate investment. Review of Quantitative Finance and Accounting, 47 (2): 343-368.

*       Shleifer A, Vishny RW. (1994). Politicians and firms. The Quarterly Journal of Economics, 109(4):995–1025.

*       Wang L (2015) Protection or expropriation: politically connected independent directors in China. Journal of Banking & Finance, 55:92–106.

*      Wang, Zh. Chen, M.H. Chin, CH. Zhang, Q. (2017). Managerial ability, political connections, and fraudulent financial reporting in China, Journal of Accounting and Public Policy, 36 (2): 162-141