Agency Costs and the Relationship between Financial Distress Risk and the Stock Prices Crash Risk

Abstract

Stock Prices Crash RiskThe of risk the stock price crash, which indicates the possibility of a sharp and sudden drop in price, is affected by the risk of financial distress, and agency costs intensify this relationship. Empirical investigation of this issue is the aim of the present studyTo achieve the goal of the research, the data of 211 corporations active in the Tehran Stock Exchange were selected during a 10-year period from 2012 to 2021, and multivariate linear regression method and mixed data model were used to test the hypothesis. The findings showed that the risk of financial distress (criterion based on market information) does not increase the risk of stock prices crash. .Also the existence of agency costs does not intensify the relationship between the risk of financial distress and risk of stock prices crash. In addition to this test and additional analyzes showed that the risk of financial distress (criterion based on Altman's accounting information) increases the risk of stock prices crash (criterion of negative skewness of stock returns). Investigating the effect of agency costs on the relationship between the risk of financial distress and risk of stock prices crash and measuring the risk of crash with the two criteria of negative skewness of stock returns and downward volatility, the risk of financial distress with the two criteria of Merton and Altman, as well as adjusting the agency costs of each company. With industry average, research innovation is considered

Keywords

• agency cost
• risk of financial distress
• stock prices crash risk