Investigating the impact of financial distress risk on stock prices crashes

Subject Areas : Stock Exchange

marjan izadkhah ¹ , reza raei ² , saeed falahpor ³

1 - Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran.
2 - Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran.
3 - Department of Financial and Insurance Management, Faculty of Management, University of Tehran, Tehran, Iran .

Received: 2022-09-26 Accepted : 2022-11-27 Published : 2023-09-23

Keywords: Financial Distress Risk, Stock price crashes, Distance to default,

Abstract :

The purpose of this article is to investigate the impact of financial distress risk on the fall in the stock prices of companies listed on the Tehran Stock Exchange. In this research, statistical data of 195 companies admitted to the Tehran Stock Exchange during the years 2015-2019 have been used, and multiple regression using the panel data method has been used to analyze the data. To measure the variable of financial distress risk, Merton's distance to default index and to measure the fall of stock prices, four methods of risk period of stock price fall, negative skewness of stock returns, maximum sigma and low-to-high volatility have been used, as well as asset return ratio variables. leverage ratio, ratio of market value to book value and company size have been used as control variables. The results of the research show that there is a positive and significant relationship between financial distress risk and falling stock prices.