Stock Price Crash Risk: Investors' Sentiment and the Moderator Role of Earnings Management

Document Type : Original Article

Author

Assistant Professor of Accounting, Faculty of Finance Sciences, Kharazmi University, Iran

Abstract

Sentiment, as an inevitable factor, always affects stockholders’ transac-tions in the market and lead to incorrect stock pricing in the market. On the other hand, earnings management and providing unreal reports of company’s profitability can affect investors’ sentiment and encourage them to sell or buy the stocks. These may create stock price bubble and consequently increase the stock price crash risk. Thus the present rsearch, for the first time, investigate the association between investors’ sentiment and stock price crash risk with respect to the moderator role of earnings management. In this research, we use ARMS index and neg-ative coefficient of skewness in order to evaluate investors' sentiment and stock price crash risk, respectively, which the relationship between them is tested by the Multiple Linear Regression. Also, the statistical population of the study contains 102 accepted companies in Tehran stock exchange for the period between 2013 and 2018. The results show that the more positive and optimistic sentiment is, the more stock price crash risk we have. Also, the earnings management, as a moderator fac-tor, can reinforce their relationship.

Keywords

Accounting and Auditing Research
Volume 12, Issue 47
October 2020
Pages 115-132

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