Articlehybrid2022

The Interactive Effect of Ownership Structure on the Relationship between Annual Board Report Readability and Stock Price Crash Risk

Mohsen Tavakoli Shandiz · Farzaneh Nassir Zadeh · Davood Askarany

33 citations0/0 files storedJournal of risk and financial management

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

This study investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk in companies listed on the Tehran Stock Exchange (TSE). The negative skewness model was used to measure the crash risk of stock prices and the Fog index was used for determining the readability of the board of directors’ report. The ownership structure is examined in institutional ownership, significant managerial ownership, and family ownership. The data of companies listed on the TSE from 2013 to 2019 have been used. The statistical method of this research is multiple regressions and, to test the research hypotheses, the data panel model and the ordinary least squares method have been employed. Overall, this study provides new evidence to explain the reporting quality and the crash risk of stock prices from the lenses of the agency theory. It further investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk. The results show a significant correlation between the readability of the board of directors’ report and the crash risk of stock prices. Furthermore, the relationship between the readability of the board report and stock price crash risk is not affected by the ownership structure, including institutional ownership, significant managerial ownership, and family ownership. It can be inferred that an ownership structure, which includes institutional shareholders, significant shareholders, and family ownership, increases the supervision of managers and their reports, so they cannot keep adverse information from being released. This will ultimately improve the readability of their reports and reduce the risk of stock price crashes.

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References

1997A Survey of Corporate Governance 2008Annual report readability, current earnings, and earnings persistence 2005R2 around the world: New theory and new tests☆2009Opaque financial reports, R2, and crash risk☆2001Forecasting crashes: trading volume, past returns, and conditional skewness in stock prices 1998Large Shareholders as Monitors: Is There a Trade‐Off between Liquidity and Control?2014Measuring Readability in Financial Disclosures 2011CFOs versus CEOs: Equity incentives and crashes

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