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We explore whether firm managers trade on future stock price crash risk. This depends on managers’ ability to assess future crash risk, and on whether the expected payoff is greater than the expected costs associated with potential reputation loss and litigation risk. We find that insider sales are positively associated with future crash risk, which is consistent with managers’ trading on crash risk for personal gain. We also find that managers take advantage of high information opacity to pursue crash-risk-based insider sales more aggressively, but are less able to capitalize on this in the case of financial constraints or post-SOX.

Purpose-Whether financial analysts play an effective role as information intermediaries and monitors has triggered a wide spread of debate among academics and practitioners to date. This study complements this debate by investigating the association between analyst coverage and firm-specific future stock price crash risk. Design/methodology/approach-Regression analysis is based on a large sample of U.S. public firms and the crash risk measure of Hutton et al. (2009). Potential endogeneity concerns are alleviated by (i) restricting the sample period to the post-Regulation-FD period and (ii) conducting an analysis of the impact threshold for a confounding variable method per Larcker and Rusticus (2010). Findings-Evidence reveals that a high level of analyst coverage is associated with lower future stock price crash risk. Further, the negative association between analyst coverage and stock price crash risk is stronger for firms that have high financial opacity. Additionally, analyst forecast pessimism is negatively associated with future crash risk. Originality/value-The findings of this study offer support for the view that analysts serve positive roles as information intermediaries and monitors in the US stock market. Practical implications-This study is of interest to investors who seek analyst reports for their investment decision-making and for information providers who demand external financing. The findings of this study also have some other important implications for practitioners, given the economic and welfare consequences of stock price crashes.

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