Abstract
The present study aims to investigate the effects of macroeconomic variables on stock price crash risk in the economically uncertain conditions of Iran’s market. This study also seeks to examine whether there is a significant relationship between some firm characteristics and falling stock prices. The sample of the study includes 152 Iranian companies listed on the Tehran Stock Exchange (TSE) between 2014 and 2019. Furthermore, the research model has been estimated using a fixed effect pattern, and the DUVOL (down-to-up volatility) measure is defined as a proxy for stock price crash risk. Consistent with our expectations, the results show that there is a positive association between the inflation and unemployment rates and stock price crash risk, whereas the GDP and exchange rates are correlated negatively with crash risk. In fact, with rising inflation and unemployment, on the one hand, the amount of savings and the purchasing power of the people have decreased, and on the other hand, it has reduced the sales of companies due to the increase in the pricing of manufactured products. In Iran’s economically uncertain situation due to sanctions, managers are trying to overstate financial performance and conceal bad news to have better access to financing; so, when the total amount of bad news accumulated over time reaches a tipping point, it leads to a stock crash. It also appears that when the exchange rate rises, Iranian investors prefer to buy companies’ shares to maintain the purchasing power of their money. Outcomes also confirm that larger firms and those with higher Return on Assets (ROA) are more sensitive to crash risk.
Highlights
Sudden changes in stock prices have attracted the attention of many academics and professionals in the capital market during recent years
Since most of the prior studies have focused on firm-level factors, and few studies have taken a more general look at this issue and considered macroeconomic factors, our study examines both dimensions simultaneously in Iran’s economic crunch, which can be of great help to the research literature
We provide evidence that macroeconomic variables add to firm-specific stock price crash risk, and claim that this impact can appear as managers’ motivations to withhold negative news boost in economically uncertain periods, where systemic risk has increased sharply because of severe sanctions
Summary
Sudden changes in stock prices have attracted the attention of many academics and professionals in the capital market during recent years. There has been a lot of research around the world about the impact of firm-level factors on stock price crash risk, some of which were internal factors, and some external. Sustainability 2021, 13, 3688 political connections [19], trading behavior and sentiment of investors [20,21], and product market competition [22] have tried to investigate a couple of these corporate external factors. This study has a slightly different approach and aims to examine simultaneously the effects of some corporate characteristics as well as the most important macroeconomic external factors on the stock price crash. Since most of the prior studies have focused on firm-level factors, and few studies have taken a more general look at this issue and considered macroeconomic factors, our study examines both dimensions simultaneously in Iran’s economic crunch, which can be of great help to the research literature. Researching a systematic high-risk market, whose managers have high opportunistic motivations and where investor emotional behavior fluctuates sharply, can be very challenging
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