The Effect of Cost Stickiness on Future Stock Price Crash Risk: Focused on the Role of Information Opacity
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This study investigates the effect of cost stickiness on the future stock price crash risk considering the role of information opacity. While the strategic signal hypothesis and the information asymmetry hypothesis conflict in explaining the stock crashes, this study tests both hypotheses by postulating firms being under information opacity. Using financial data of KSE-listed firms from 2007 to 2019, the analysis shows that the information asymmetry hypothesis is supported in firms with less information opacity, while the signaling hypothesis is supported in those with higher information opacity. However, cost stickiness with an accumulative accounting opacity seems to give the opposite signal in which firms’ managerial decisions on operating cost are inefficient (i.e., confirmation effect), which leads to markets’ immediate response to the bad news and lowering stock crash risks. This study contributes to the literature by reporting the effect of a company's cost behavior from a valuation perspective, and suggests that companies with a downward cost rigidity need to make more efforts to secure accounting transparency.
Abstract
This study investigates the effect of cost stickiness on the future stock price crash risk considering the role of information opacity. While the strategic signal hypothesis and the information asymmetry hypothesis conflict in explaining the stock crashes, this study tests both hypotheses by postulating firms being under information opacity. Using financial data of KSE-listed firms from 2007 to 2019, the analysis shows that the information asymmetry hypothesis is supported in firms with less information opacity, while the signaling hypothesis is supported in those with higher information opacity. However, cost stickiness with an accumulative accounting opacity seems to give the opposite signal in which firms’ managerial decisions on operating cost are inefficient (i.e., confirmation effect), which leads to markets’ immediate response to the bad news and lowering stock crash risks. This study contributes to the literature by reporting the effect of a company's cost behavior from a valuation perspective, and suggests that companies with a downward cost rigidity need to make more efforts to secure accounting transparency.
참고문헌 (28)
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