The Relationship between the Managerial Overconfidence and Stock Price Crash Risk in Firms Listed in Tehran Stock Exchange

Abstract

The purpose of this research is to investigate the relationship between managerial overconfidence and stock price crash risk because managers like to hide bad news and report only good news. The accumulation of bad news after a few months or years is impossible and the news releases in the capital market and causes abnormal decrease in stock price. This phenomenon is called stock price crash risk. Three and four criteria were used for managerial overconfidence and stock price crash risk, respectively: overinvestment, capital expenditure and earning forecast were used for overconfidence measurement. Using data of 71 firms listed in Tehran Stock Exchange from 2003 to 2015, we find that there is a positive and significant relationship between managers` overconfidence and stock price crash risk. The findings support this theory that non- conservative managers` appointment will cause crash in stock price. Therefore, it is recommended that companies limit these managers and enjoy less crash in their stock prices

Keywords

• : Managerial Overconfidence
• stock price crash risk
• Financial Leverage
• Growth Opportunities