If you can catch me: How does regulatory technology affect stock price crash risk?

PurposeThe aim of this paper is to provide additional insights on the association between real earnings management (REM) and crash risk, particularly from the perspective of an emerging market economy. It also examines the moderation role that internal and external corporate governance may play in this area.Design/methodology/approachRelying on archival data from the RESSET and CSMAR databases over a timeframe from 2010 to 2018 of China listed company, the authors test the hypotheses by regressing common measures of crash risk on the treatment variable (REM) and crash risk control variables identified in the prior crash risk literature. The authors also introduce monitoring proxies (internal controls as an internal governance and institutional ownership as an external governance) and assess how effective internal and external governance moderate the relation between REM and stock price crash risk.FindingsThe results suggest firms with higher REM have a significantly greater stock price crash risk, and that this association is mitigated by external monitoring. That is, greater institutional ownership, particularly pressure insensitive owners, mitigates the impact of REM on stock price crash risk. However, internal control does not mitigate the association between REM and stock price crash risk.Originality/valueFollowing the passage of the Sarbanes–Oxley (SOX) Act, prior research has documented an increase in the use of REM and a positive association between REM and cash risk. The authors demonstrate that they persist in one of the largest emerging markets where institutional regulations, market conditions and corporate behaviors are different from those in developed markets. Also, the assessment of the moderation effect of internal and external governance mechanisms could have meaningful implications for investors and regulators in Chinese and other emerging markets.

To examine motor vehicle crash frequency and risk factors following moderate-to-severe traumatic brain injury (TBI). Eight TBI Model Systems sites. Participants: Adults ( N = 438) with TBI who required inpatient acute rehabilitation. Cross-sectional, observational design. Driving survey completed at phone follow-up 1 to 30 years after injury. TBI participants reported 1.5 to 2.5 times the frequency of crashes noted in the general population depending on the time frame queried, even when accounting for unreported crashes. Most reported having no crashes; for those who experienced a crash, half of them reported a single incident. Based on logistic regression, age at survey, years since injury, and perception of driving skills were significantly associated with crashes. Compared with national statistics, crash risk is higher following TBI based on self-report. Older age and less time since resuming driving were associated with lower crash risk. When driving was resumed was not associated with crash risk. These results do not justify restricting people from driving after TBI, given that the most who resumed driving did not report experiencing any crashes. However, there is a need to identify and address factors that increase crash risk after TBI.

Does non-punitive regulation diminish stock price crash risk?

Free riding or participation in governance: Minority shareholders’ online voting and corporate responsiveness

PurposeThe paper's purpose is to investigate the effects of digital finance on the risk of stock price crashes and the underlying transmission mechanisms, and to provide suggestions to inhibit the stock crash risk (CR).Design/methodology/approachThis paper selects all companies that were listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2011 to 2020. It then uses the two-way fixed effect model and the intermediary effect model to verify such effects.FindingsThe overall outcomes demonstrate such a result that the CR of listed companies in China can be significantly reduced by the development of digital finance, and the overall transparency of business financial information and the equity pledge of controlling shareholders are the two underlying transmission mechanisms that digital finance can cause effects on the CR of stocks.Research limitations/implicationsThe main limitations are that there may exist some problems in the method for evaluating the CR of stocks. And there may be a problem of endogeneity caused by the empirical model cannot control all correlation variables.Practical implicationsThis paper would provide policy implications, for different roles, to inhibit the stock CR and to make the development of the economy more stabilize.Social implicationsDigital finance can promote economic development while restraining financial risks at the same time. Therefore, although this study is based on the relevant data from China, it can also provide a reference for other economies with different basic conditions from China, to promote the overall development of the world economy.Originality/valueThe current academic research on digital finance or stock price CR has been relatively sufficient, but there are few papers that combined both. By combining digital finance with stock CR, this paper researches the influence of digital finance on the CR of stocks through empirical analysis. So, this paper would provide new research ideas and evidence for potential influence factors of the CR of stocks, fill the gap in this research field and provide certain help for subsequent scholars to conduct relevant research.

This paper studies the effect of mandatory information disclosure on stock price crash risk using data on listed firms’ private in-house meetings in the Chinese stock market. Utilizing the regulation implemented by the Shenzhen Stock Exchange in 2012, we use a difference-in-difference approach and find that the treated group exhibits significantly lower crash risk comparing to the control group listed on the Shanghai Stock Exchange, following the regulation. This finding suggests that improving transparency may reduce crash risk, and have implications to both academic and policymakers.

This study focuses on the cross-sectional determinants of idiosyncratic crash risk. In specific, we verify the role of financial disclosure quality and internal corporate governance mechanisms associated with the board of directors, executive compensation and audit committee as buffers of crash risk upsurge during financial turmoil. A sample of 1398 firms, mostly from developed countries, is analyzed covering two different periods: July 2005 to June 2007 (the pre-crisis period) and July 2007 to June 2009 (the crisis period). While our results reveal that accounting opacity before the crisis fueled crash risk during the crisis, we fail to find strong evidence of an association between pre-crisis internal corporate governance metrics and crash risk variation during the crisis. Crucially, our results also reject the hypothesis that internal corporate governance mechanisms alleviated earnings opacity or mediated the relationship between internal corporate governance mechanisms and crash risk variation. Finally, robustness tests indicate that these conclusions hold when controlling for selection bias in the definition of the utilized sample.

Proactive traffic safety management systems can reduce crashes by identifying crash precursors, evaluating real-time crash risks, and implementing suitable interventions. The basic prerequisite for developing such a system is to propose a reliable crash risk evaluation model that takes real-time traffic flow data as input. Previous studies have primarily focused on real-time crash prediction using some statistical or machine-learning methods. However, further quantitative evaluation and classification of crash risks have been ignored. In this study, we conduct a systematic crash risk evaluation workflow, including crash risk prediction, crash risk quantification, and crash risk classification. Specifically, the crash risk prediction using an extended logit model is proposed, from which CAS, CSD, UAS, DAS, DTV are identified to be contributing factors of crash risks. Then a crash risk quantification model based on the parameter evaluation of the extended logit model is developed. The crash risks of urban expressways and their spatial-temporal evolution trends are quantified. Finally, the crash risks are classified into high crash risk level, moderate crash risk level, and low crash risk level by the k-means cluster algorithm. Then the threshold boundaries of different crash risk levels are determined. The research results provide a proactive guidance for traffic safety management of urban expressways.

BackgroundIn recent years, cases of stock price crash have continued to emerge. However, yet little research to date has investigated the compensation incentives of top management team (TMT) affect the risk of stock price crash. Nor has research considered the impact of the executive pay gap on the stock price crash risk. Especially, as the “egalitarianism” was broken in the compensation system, and the increase of the degree of marketization of salaries, the executive pay gap has shown an expanding trend. Under this circumstance, we would systematically examine the association between the extent of executive pay gap and its future stock price crash risk.Design, methodology, and approachBased on the sample of A-Share non-financial listed companies in Shanghai and Shenzhen Stock Exchange, we used firm FE regression method to empirically examine the relationship of the internal and external compensation gaps of executives and crash risk, as well as its contigency variables and inner mechanism.FindingsThe empirical results show that there is a U-shaped relationship between the internal and external pay gap of executives and future crash risk. After passing the endogenous test and the robustness test, the conclusion still holds. Further research shows that the U-shaped relationship between the pay gap and crash risk is more pronounced, when firms are affiliated with the non-state-owned enterprise or its compensation fairness is lower. Finally, the quality of information disclosure plays a mediation effect when executive pay gap affects stock price crash risk.Originality and valueAccording to the economic and behavior perspectives, we explored the impact of compensation structure on stock price crash risk from the pay gap of executives for the first time, and extended the emerging literature of forecasting future stock price crash risk and executive pay gap. In addition, a key implication of our findings is that more guidance for firms is provided to design the compensation structures and to reduce stock price crash risk.

Back to table of contents Previous article Next article Clinical and Research NewsFull AccessMedicated ADHD Patients Have Reduced Risk of Motor Vehicle CrashesHarriet EdlesonHarriet EdlesonSearch for more papers by this authorPublished Online:15 Jun 2017https://doi.org/10.1176/appi.pn.2017.6a19AbstractResearchers estimate that 1 in 5 of vehicle accidents involving people with ADHD could have been avoided if they had been on the proper medication.Medication for attention-deficit/hyperactivity disorder (ADHD) may help to lower the risk of motor vehicle crashes among patients with ADHD, a study published May 10 in JAMA Psychiatry suggests. Stock/bowdenimagesIn a national sample of 2.3 million patients with ADHD in the United States, those who took ADHD medication were significantly less likely to be involved in crashes. Motor vehicle crashes are a major public health problem, and research has shown that individuals with ADHD are more likely than others to experience these accidents. The purpose of the study was to explore the association between ADHD medication use and the risk of motor vehicle crashes in a large cohort of patients with the disorder. Zheng Chang, Ph.D., and colleagues in the Department of Medical Epidemiology and Biostatistics at Karolinska Institutet in Stockholm, Sweden, used data from the Truven Health Analytics MarketScan Commercial Claims and Encounters database to identify people aged 18 and older who had an ADHD diagnosis or had received ADHD medication between January 2005 and the end of December 2014. Patients were tracked from first inpatient or outpatient diagnosis or filled prescription until first disenrollment (zero days of medical or drug coverage in a month) or December 31, 2014, whichever came first. The number of emergency department visits for motor vehicle crashes for these patients was compared with that of non-ADHD controls.The study cohort consisted of 2,319,450 patients diagnosed with ADHD; the mean age was 32.5 years, and 51.7 percent were female.During follow-up, 1,946,198 patients (83.9 percent) received at least one prescription for an ADHD medication. A total of 11,224 patients (0.5 percent) had at least one emergency department visit for a motor vehicle crash. Patients with ADHD had a significantly higher risk of a motor vehicle crash than matched controls (odds ratio [OR]=1.49 for men and OR=1.44 for women). Untreated patients with ADHD had the highest risk of a motor vehicle crash compared with medicated patients with ADHD and controls.Chang and colleagues also compared the risk of motor vehicle crashes in individual patients during months when they were medicated and not medicated. Male patients had a 38 percent lower risk of crashes when taking ADHD mediation compared with months not receiving the medication, while female patients had a 42 percent lower risk. Similar decreases existed in all age groups.ADHD medication use was associated with a 34 percent lower risk of accidents two years later in male patients with ADHD and a 27 percent lower risk in female patients with ADHD.The findings suggested that up to 22.1 percent of the crashes involving ADHD patients could have been prevented if they had been taking medication.“These findings call attention to a prevalent and preventable cause of mortality and morbidity among patients with ADHD,” wrote the researchers. “If replicated, our results should be considered along with other potential benefits and harms associated with ADHD medication use.”The study is the first to “demonstrate a long-term association between receiving ADHD medication and decreased motor vehicle crashes,” the authors wrote. “If this result indeed reflects a protective effect, it is possible that sustained ADHD medication use might lead to lower risk of comorbid problems … or contribute to long-term improvements in life functioning.”“Clinicians should not presume that all ADHD medications at any dosage will be effective for every patient,” Vishal Madaan, M.D., and Daniel J. Cox, Ph.D., wrote in an accompanying commentary. They are in the Department of Psychiatry and Neurobehavioral Sciences in the University of Virginia Health System. “Health care professionals should ensure that both the medication and dosage are optimal for a particular patient-driver, that the medication coverage is adequate for the particular patient’s driving routine, and that the medication prescribed is not responsible for worse driving as its effects wear off (rebound effect).” In addition to asking patients about school and work performance, clinicians should ask about symptoms “suggestive of distracted driving” such as repeated speeding tickets, missing traffic signs, swerving and switching lanes haphazardly, road rage, and consistently fiddling with the radio, Madaan told Psychiatric News.He also advised that if a patient is taking an ADHD medication that works well, clinicians should ensure that it lasts long enough to cover times when the patient may be driving. ■“Association Between Medication Use for Attention-Deficit/Hyperactivity Disorder and Risk of Motor Vehicle Crashes” can be accessed here. “Distracted Driving With Attention-Deficit/Hyperactivity Disorder” is available here. 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PurposeMotivated by the lure of cryptocurrencies for retail investors, whose concentrated holdings are particularly exposed to price crash risk, this paper aims to study the relationship between investor attention and crash risk for a range of cryptocurrencies.Design/methodology/approachThis study adopts a quantile regression approach to determine the effect of investor attention on crash risk. Crash risk is measured using the negative coefficient of skewness and down up volatility.FindingsThis study finds that the connection is concentrated in the tails of the crash risk distribution. Investor attention has a positive relationship with crash risk when crash risk is low (below-median quantiles) and negative when crash risk is high (above-median). The findings are consistent for different measures of crash risk, for alternate internet searches and for a panel of large cryptocurrencies in addition to Bitcoin. This study also notes seasonality in crash risk, with higher crash risk during the June–August period and lower crash risk in the Halloween period that runs from November to April.Originality/valueThe results provide insights that are not apparent in previous analyses of cryptocurrency price crash risk. The results are particularly important for retail investors, who constitute a large portion of the cryptocurrency market, as they tend to hold concentrated investments and so a price crash of a single asset may have a large bearing on their wealth.

Does vehicle colour influence crash risk?

Corporate social responsibility and stock price crash risk

Against the backdrop of the increasingly salient constraints of resource scarcity and environmental pressures on global economic development, sustainable innovation emerges as an imperative strategic pathway for corporations to secure a competitive edge in the international marketplace. Corporate innovation capability serves as the critical factor for both the advancement of sustainable innovation and the maintenance of the corporate competitive edge. While the extant literature has extensively explored how internal and external governance mechanism forces shape corporate investment decision-making, the critical role of non-CEO executives in the process of corporate innovation investment decision-making remains conspicuously underexplored. This study examines the effect of bottom–up governance mechanisms within executive teams on corporate innovation investment from the perspective of non-CEO executive independence. We used a sample of A-listed companies on the Shanghai and Shenzhen stock exchanges from 2007 to 2021 for empirical tests. We found a U-shaped relation between non-CEO executive independence and corporate innovation investment, and this finding still held after addressing endogeneity issues and conducting a series of robustness tests. Mechanism analysis revealed that both non-CEO executives’ decision horizon and firm agency costs positively moderate this U-shaped relationship. This U-shaped effect is pronounced in firms with lower CEO power, lower levels of corporate governance, and non-state-owned firms. Our findings provide an important basis for clarifying the internal governance mechanism of the executive teams while offering new insights for optimizing the allocation of corporate resources and promoting corporate innovation from the perspective of improving corporate governance.

Synopsis The research problem This study examines whether and how the increase in auditors’ legal liability affects their clients’ stock price crash risk. Motivation Previous studies have shown that auditors have the incentive to reduce potential litigation risk by improving clients’ financial reporting quality, which in turn limits their clients’ ability to withhold bad news; however, the literature does not provide direct evidence on the relationship between auditor litigation risk and client crash risk. Besides, most studies have focused on auditors’ impact on clients’ financial statements but seldom have investigated auditors’ impact on clients’ other information-disclosure channels. This study attempts to provide evidence showing that auditor legal liability could indirectly affect clients’ crash risk by influencing clients’ conservatism in accounting practices and optimism in information disclosure. The test hypotheses H1: Clients experience declines in future stock price crash risk after their auditors change from the limited liability company (LLC) form to the limited liability partnership (LLP) form. H2: After changing to the LLP form, auditors enhance clients’ accounting conservatism and decrease clients’ optimism in management earnings forecasts and MD&A disclosures, thereby lowering clients’ future stock price crash risk. Target population This study should be of interest to auditors, firm managers, investors, and policy makers. Adopted methodology We adopted Ordinary Least Squares (OLS) regressions and path analysis. Analyses We utilized the staggered organizational transformation of Chinese audit firms — i.e., from LLCs to LLPs — to identify the increase in auditors’ legal liability. Using a sample of Chinese public-listed firms, we performed cross-sectional regressions to examine how clients’ crash risk changes after their auditors transform to LLPs. Next, we conducted a path analysis to show how auditor litigation risk affected client crash risk. Findings We found that after auditors transform into LLPs, their clients demonstrate lower crash risk. We further found that accounting conservatism, optimism in management earnings forecasts, and optimism in management discussion and analysis (MD&A) disclosures explained the negative relationship between auditor legal liability and client crash risk.