Effects of Financial Constraints on Crash Risk of Future Stock Price in View of the Effects of Abnormal Accruals

Abstract

Objective: This study investigates the effects of financial constraints on the crash risk of future stock price in the years 2010 to 2017, considering the effects of abnormal accruals. Methods: The data was collected by documentations review method and referring to databases, and was analyzed by Stata and Eviews software. Panel data model was applied to test the research hypotheses. Results: The test results showed that the financing constraints increase the likelihood of crash risk of future stock price. In addition, the findings of the research indicated that the positive impact of the financial constraints on crash risk of future stock price will be exacerbated by the effect of the accruals Conclusion: In the companies with financial constraints, the possibility of accumulation and hiding bad news by manager in search for financial resources will increase. Also earnings management and bad news hiding by managers will go on by the use of the accruals.

Keywords

• financial constraints
• crash risk of future stock price
• earnings management
• abnormal accruals