Abstract
The purpose of this study is to investigate the moderating role of manager age on the association between income smoothing and stock price crashes and the association between default risk and stock price crashes. The data was collected from the samples of 182 companies firms listed on the Indonesia Stock Exchange from 2013 to 2017 (910 firm-year observation). Using the multivariate analysis as the data analysis method, this study revealed that manager age and default risk were negatively associated with stock price crashes. On the other hand, the income smoothing was not significantly associated with stock price crashes. With regard to moderating effect of manager age, the results showed that manager age effect the association between default risk and stock price crashes with a positive direction. Meanwhile, no significant effect of manager age on the association between income smoothing and stock price crashes is found in this study.
Highlights
Efficient market theory assumes market participants act rationally and react quickly to new information
The effect of income smoothing, default risk, and moderating effect of age on stock price crashes are relatively strong as reflected in pvalue less than 1% or F-test of 3.554
The H1 predicts that income smoothing affect stock price crashes, but the test result do not supported H1
Summary
Efficient market theory assumes market participants act rationally and react quickly to new information. The theory holds when information is widely available to market participants at the same time (Shleifer, 2000). In such condition stock prices should reflect the economic reality of a company. Firms may intentionally hide bad news to avoid its negative effect on stock prices. In such a situation, the firm’s stock price will no longer reflect real financial conditions.
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
