Relationship between Information Disclosure with the Stock Price Synchronicity and Crash Risk of Falling Stock Prices within Simultaneous Equations System

Abstract

Objective: This study examines the bilateral (two-sided) relationship between information disclosure with stock price synchronicity and the crash risk of falling stock prices in the companies listed in the Tehran Stock Exchange, TSE, in the period 2008 to 2015. Method: Data was collected by documentations review and referring to databases, and the data analysis was inferential. To test the research hypotheses, the system of simultaneous equations by two-stage estimation method was estimated. Results: The results of the estimation indicated there is a bilateral relationship between information disclosure with stock price synchronicity and crash risk of falling stock prices in the TSE. Conclusion: The verified bilateral relationship is compatible with the agency and signaling theories. The agency theory implies that the increase in disclosure level results in decrease in information asymmetry and in crash risk of falling stock price, and rise in control or governance over performance and in investors trust. Also, the signaling theory suggests with regard to increase in the crash risk of falling stock prices, managers attempt to release good news and to delay publication of bad ones.

Keywords

• crash risk of stock price
• stock price synchronicity
• simultaneous equation system
• information disclosure