A survey on the effects of institutional ownership, internal audit and non-executive board members on forecasting crashes: Evidence from Tehran Stock Exchange

Abstract

Article history: Received June 4, 2014 Accepted 8 October 2014 Available online October 9 2014 This paper presents an empirical investigation to study the effects of institutional ownership, internal audit system, the number of non-executive board members and having differentiation between chair and general managers’ responsibilities on the likelihood of stock price crash on 110 listed firms on Tehran Stock Exchange over the period 2004-2011. The study uses Chen’ model (2001) [Chen, J., Hong, H., & Stein, J. C. (2001). Forecasting crashes: Trading volume, past returns, and conditional skewness in stock prices. Journal of Financial Economics, 61(3), 345-381.] to perform the investigation. Based on the results of the survey, there is a negative and meaningful relationship between stock price crash and institutional ownership when the level of significance is ten percent. In addition, as the number of non-executive board members increases, the chance of stock price crash decreases when the level of significance is five percent. However, separation between the responsibility of chair and general managers did not seem to influence on stock price and also having internal audit system had no impact on the likelihood of stock price change. © 2014 Growing Science Ltd. All rights reserved. Tehran Stock Exchange Corporate strategic system Stock price crash Income management Stock exchange negative coefficient of skewedness