The Investigating of Effect Economic Uncertainty and Economic Sanctions on Stock Price Crash Risk

Subject Areas : Journal of Capital Market Analysis

Reza Salehi ¹ , Allah Karam Salehi ²

1 - Department of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran.
2 - Department of Accounting, Masjed-Soleiman Branch, Islamic Azad University, Masjed-Soleiman, Iran

Received: 2022-02-03 Accepted : 2022-03-16 Published : 2022-02-20

Keywords: Economic uncertainty, Economic Sanctions, stock price Crash risk,

Abstract :

Abstract: This study examines the impact of economic uncertainty and economic sanctions on stock price crash risk in the Tehran Stock Exchange during 2014 to 2020 using data from 119 selected companies. The results show that there is a positive and significant relationship between economic sanctions and stock price crash risk. In other words, in a situation where the country is facing economic sanctions, consequently, the costs of companies, including production, wages, and product costs, etc., increase, that in these circumstances, managers may keep the unfavorable economic news caused by these factors hidden for some time, and this will lead to an increase in the stock price crash. The results also showed that in case of economic uncertainty, stock price crash risk increased and the criteria of economic uncertainty have a positive and significant relationship with the stock price crash risk. In other words, in a situation where there is economic uncertainty due to rising exchange, inflation rates and slowing economic growth, firm managers prefer to maintain their jobs and professional reputation, hide the bad and negative news caused by these conditions (such as rising raw materials, cost of goods, declining sales, profits, and liquidity) from the view of shareholders and investors, which ultimately leads to an increase in the stock price crash.