Open AccessHow Does the Accounting Conservatism Affect the Stock Price Crash Risk in Pakistan: The Complementary Role of Managerial and Institutional Ownership
Author(s) -
Aon Waqas,
Danish Ahmed Siddiqui
Publication year - 2021
Publication title -
journal of accounting and finance in emerging economies
Language(s) - English
Resource type - Journals
eISSN - 2519-0318
pISSN - 2518-8488
DOI - 10.26710/jafee.v7i3.1879
Subject(s) - business , panel data , accounting , conservatism , accrual , stock (firearms) , moderation , accounting information system , economics , actuarial science , econometrics , earnings , politics , mechanical engineering , psychology , social psychology , political science , law , engineering
Purpose: The conservatism of accounting and robustness of accounting information disclosure may restrain the irrational behavior of investors and help to reduce the risk of stock price crashes. This study aims to explore this in the context of developing country Pakistan. More specifically, this study investigates the effect of accounting conservatism on stock price crash risk. We also examine the complementary role of managerial and institutional ownership in strengthening this effect.
Design/Methodology/Approach: This study conducts the panel data analysis of 155 nonfinancial firms listed in PSX from 2007 to 2019. This study calculates the C-Score to measure accounting conservatism. This study measures the firm’s stock price crash risk by calculating the DUVOL of weekly share prices.
Findings: This study finds that there is a significant negative effect of accounting conservatism on firms’ stock price crash risk. This study also finds that managerial ownership enhances the stock price crash risk of the sample firms significantly as a moderator while there is no significant moderating influence of institutional ownership.
Implications/Originality/Value: The competent authorities of Pakistan should consider agency conflicts. They should direct the firms’ management to share equal information in time regardless of whether the information is good or bad for stock prices.