Economic policy uncertainty and stock price crash risk

Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?

“…Iranian firms' operations are facing greater uncertainty due to severe economic sanctions, resulting in greater volatilities in future earnings and cash flows. In confirmation of this key point, Luo and Zhang [30] also believed that economic instability in a market will worsen the financial condition of companies in the short term; hence, in such circumstances, managers have a high incentive to manage profits to slightly reduce their short-term financial pressures [34]. In an unstable market where prices fluctuate every day, it is very difficult for investors to obtain reliable information.…”

“…Concealment of bad news by managers continues for a certain threshold, and when it reaches its peak, it is impossible and costly to continue to not disclose it, and the manager will be forced to release it. After that, a huge amount of bad news suddenly enters the market and leads to an abrupt, significant, and negative drop in stock price, or stock price crash [2,23,25,34]. In fact, in a financial market, stock prices are more likely to fall when managers are motivated enough to hoard negative events.…”

“…In times of economic uncertainty, corporate directors are not likely to disclose bad news, as investors hardly get complete information under uncertainty, and investors have greater disagreement about stock prices and negative views are hidden because of short-sales constraints. [25,34]. In general, managers' efforts to make a business unit look good need to conceal negative information and news.…”

Risk attitude, financial literacy and household consumption: Evidence from stock market crash in China

“…One of the biggest concerns is the financial crashes. While Mazur et al (2020) claimed that the financial market crash in Zhang et al (2020) reveal that investors' expectations with the short run might correlate with the stock market crash risk. It is noticeable that the previous studies (Giglio et al, 2019;Giglio et al, 2020) also confirm that the probability of equity market crash before the crisis is lower because the investors tend to be more optimistic about stock market returns.…”

Environmental policies, national culture, and stock price crash risk: Evidence from renewable energy firms

“…Therefore, religiosity reduces the managers' incentives for hiding bad news from the public and lowers the risk of future stock price crashes. In a recent paper, Luo and Zhang (2020) examine the impact of economic policy uncertainty on crash risk. They find that firms are more likely to experience stock price crashes when economic policy uncertainty is higher as investors require a greater premium for holding stocks during uncertain periods.…”