Idiosyncratic risk and stock price crash risk: The moderating role of discretionary income smoothing
-
Received July 26, 2024;Accepted September 24, 2024;Published October 10, 2024
-
Author(s)Link to ORCID Index: https://orcid.org/0009-0007-2950-026XLink to ORCID Index: https://orcid.org/0000-0003-1116-4804Link to ORCID Index: https://orcid.org/0000-0002-9209-0642Link to ORCID Index: https://orcid.org/0000-0002-9760-6169
-
DOIhttp://dx.doi.org/10.21511/imfi.21(4).2024.08
-
Article InfoVolume 21 2024, Issue #4, pp. 90-103
- TO CITE АНОТАЦІЯ
- 140 Views
-
20 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Given the growing significance of the capital market, investors tend to steer clear of stock price crashes. This study aims to examine how idiosyncratic risk affects the likelihood of a stock price crash and how discretionary income smoothing affects the relationship between them. This study uses a data panel to empirically examine the hypothesis. This study uses a data panel to empirically examine the hypothesis, using 1,203 firm-year observations from non-financial companies publicly traded on the Indonesia Stock Exchange from 2019 to 2021. The results show that firms with greater idiosyncratic risk do not significantly generate higher stock price crash risk. Nevertheless, this study also discovered that managing discretionary income smoothing is essential to increasing the risk of crashes. The test shows that the coefficient of discretionary income smoothing is 0.153 and significant with a t-value of 2.104. Moreover, the investigations also indicate that greater use of discretionary income smoothing can amplify the impact of idiosyncratic risk on the likelihood of stock price crashes. This is shown from the results where the moderation of the two variables has a positive coefficient of 0.087 and is significant at 10% with a t-value of 1.446. Based on the findings, this study concludes that the presence of idiosyncratic risk by itself may not substantially impact the probability of stock market crashes. However, combined with discretionary income smoothing, it can worsen the potential negative consequences. It implies that how a firm reports its income can affect its susceptibility to stock price crashes.
- Keywords
-
JEL Classification (Paper profile tab)G41, M41, M49
-
References31
-
Tables5
-
Figures0
-
- Table 1. Descriptive statistics
- Table 2. Effect of idiosyncratic risk and discretionary income smoothing on stock price crash risk
- Table 3. Additional test: DUVOL as stock crash measurement
- Table 4. Robustness test: company size and profitability
- Table 5. Robustness test: binary logistic regression using CRASH
-
- Bushman, R., Dai, Z., & Wang, X. (2010). Risk and CEO turnover. Journal of Financial Economics, 96(3), 381-398.
- Cao, J., Wen, F., Zhang, Y., Zhujia, Y., & Yun, Z. (2022). Idiosyncratic volatility and stock price crash risk: Evidence from China. Finance Research Letters, 44(C), 102095.
- Chang, X., Yangyang, C., & Zolotoy, L. (2017). Stock liquidity and stock price crash risk. The Journal of Financial and Quantitative Analysis, 52(4), 1605-1637.
- Chen, C., Kim, J. B., & Yao, L. (2017). Earnings smoothing: Does it exacerbate or constrain stock price. Journal of Corporate Finance, 42(C), 36-54.
- Chen, Hong, & Stein. (2001). Forecasting crashes: Trading volume, past returns, and conditional skewness in stock prices. Journal of Financial Economics, 61(3), 345-381.
- Dai, Z., Zhou, H., Wen, F., & He, S. (2020). Efficient predictability of stock return volatility: The role of stock market implied volatility. The North American Journal of Economics and Finance, 52(C), 101174.
- Dechow, P., Weili, G., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their consequences. Journal of Accounting and Economics, 50(2-3), 344-401.
- DeFond, M. L., & Park., C. W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115-139.
- DeFond, M. L., Hung, M., Li, S., & Li, Y. (2015). Does mandatory IFRS adoption affect crash risk? The Accounting Review, 90(1), 265-299.
- Durnev, A., Morck, R., Yeung, B., & Zarowin, P. (2003). Does greater firm-specific return variation mean more or less informed stock pricing? Journal of Accounting Research, 41(5), 797-836.
- Francis, J., O, P. M., LaFond, R., & Schipper, K. (2004). Costs of equity and earnings attributes. Accounting Review, 79(4), 967-1010.
- Ghosh, A., Cai, F., & Li, W. (2000). The determinants of capital structure. American Business Review, 18(2), 129-132.
- Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 24(7-8), 3-73.
- Hutton, A. P., Marcus, A. J., & Tehranian, H. (2009). Opaque financial reports, R2, and crash risk. Journal of Financial Economics, 94(1), 67-86.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency cost and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Jin, L. &. Myers, S. C. (2006). R2 around the world: New theory and new tests. Journal of Financial Economics, 79(2), 257-292.
- Khurana, I. K., Pereira, R., & Zhang, E. X. (2017). Is real earnings smoothing harmful? Evidence from firm-specific stock price crash risk. Contemporary Accounting Research, 35(1), 558-587.
- Kim, Dong-JIn, Li, Xi, Zhang, & Liandong. (2011a). CFOs versus CEOs: Equity incentives and crashes. Journal of Financial Economics, 101(3), 713-730.
- Kim, Dong-Jin, Song, Hyunjin, Zhang, & Liandong. (2011b). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639-662.
- Kim, J. B., & Zhang, L. (2016). Accounting conservatism and stock price crash risk: Firm-level evidence. Contemporary accounting research, 33(1), 412-441.
- Kirschenheiter, M., & Melumad, N. D. (2002). Can “big bath” and earnings smoothing co-exist as equilibrium financial reporting strategies? Journal of Accounting Research, 40(3), 761-796.
- Leuz, C., Nanda, D., & Wysocki, P. (2003). Investor protection and earnings management: An international comparison. Journal of Financial Economics, 69(3), 505-527.
- Li, K., Morck, R., Yang, F., & Yeung, B. (2004). Firm-specific variation and openness in emerging markets. Review of Economics and Statistics, 86(3), 658-669.
- Sandeep, P., & Asani, S. (1998). Crises in developed and emerging stock markets. Financial Analysts Journal, 54(6), 50-61.
- Tucker, J., & Zarowin, P. (2006). Does income smoothing improve earnings informativeness? The Accounting Review, 81(1), 251-270.
- Vo, X. V., & Phan, D. B. (2019). Herd behavior and idiosyncratic volatility in a frontier market. Pacific Basin Finance Journal, 53, 321-330.
- Wen, F., Weng, K., & Zhou, W. (2020a). Measuring the contribution of Chinese financial institutions to systemic risk: An extended asymmetric CoVaR approach. Risk Management, 22(4), 310-337.
- Wen, F., Wu, N., & Gong, X. (2020b). China’s carbon emissions trading and stock returns. Energy Economics, 86, 104627.
- Wen, F., Xu, L., Chen, B., Xia, X., & Li, J. (2020c). Heterogeneous institutional investors, short selling and stock price crash risk: Evidence from China. Emerging Markets, 56(12), 2812-2825.
- Wen, F., Yuan, Y., & Zhou, W. (2020d). Cross-shareholding networks and stock price synchronicity: Evidence from China. International Journal of Finance and Economics, 26(1), 914-948.
- Zhong, Y., Li, W., & Li, Y. (2021). Discretionary income smoothing and crash risk: Evidence from China. Asia-Pacific Journal of Accounting and Economics, 28(3), 311-333.
-
-
Conceptualization
Jeanice Cecilia Setiawan, Felizia Arni Rudiawarni, Dedhy Sulistiawan, Valentin Radu
-
Data curation
Jeanice Cecilia Setiawan
-
Formal Analysis
Jeanice Cecilia Setiawan, Felizia Arni Rudiawarni, Dedhy Sulistiawan, Valentin Radu
-
Investigation
Jeanice Cecilia Setiawan
-
Methodology
Jeanice Cecilia Setiawan, Felizia Arni Rudiawarni, Dedhy Sulistiawan
-
Writing – original draft
Jeanice Cecilia Setiawan
-
Project administration
Felizia Arni Rudiawarni
-
Supervision
Felizia Arni Rudiawarni, Dedhy Sulistiawan
-
Validation
Felizia Arni Rudiawarni, Dedhy Sulistiawan, Valentin Radu
-
Writing – review & editing
Felizia Arni Rudiawarni, Dedhy Sulistiawan, Valentin Radu
-
Visualization
Dedhy Sulistiawan
-
Conceptualization
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam , Ahmad Bashawir Abdul Ghani , Irwanshah Zainal Abidin , Jeya Malar Rayaiappan doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11917 Downloads: 5693 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Perceived health risk, online retail ethics, and consumer behavior within online shopping during the COVID-19 pandemic
Yuniarti Fihartini , Arief Helmi , Meydia Hassan , Yevis Marty Oesman doi: http://dx.doi.org/10.21511/im.17(3).2021.02Innovative Marketing Volume 17, 2021 Issue #3 pp. 17-29 Views: 4454 Downloads: 1707 TO CITE АНОТАЦІЯThe risk of virus contracting during the COVID-19 pandemic has changed consumer preference for online shopping to meet their daily needs than shopping in brick-and-mortar stores. Online shopping presents a different environment, atmosphere, and experience. The possibility of ethical violations is higher during online than face-to-face transactions. Therefore, this study was conducted to investigate the influence of perceived health risk and customer perception of online retail ethics on consumer online shopping behavior during the COVID-19 pandemic, involving seven variables, namely perceived health risk, security, privacy, non-deception, reliability fulfillment, service recovery, and online shopping behavior. The data were collected through an online survey by employing the purposive sampling technique to a consumer who has shopped online during the COVID-19 pandemic in Indonesia. 315 valid responses were obtained and analyzed through quantitative method using SEM-Amos. The results showed that perceived health risk and four variables of online retail ethics including security, privacy, reliability fulfillment, and service recovery affected online shopping behavior. Meanwhile, non-deception was found to have an insignificant effect. The coefficient value proved perceived health risk to be more dominant in influencing online shopping behavior than the variables of online retail ethics. Thus, consumers pay more concern for their health during online shopping. However, positive consumer perceptions of the behavior of online retail websites in providing services also can encourage consumers to shop online during this pandemic.
-
Analysis of eSports as a commercial activity
Natalia Lokhman , Oksana Karashchuk , Olena Kornilova doi: http://dx.doi.org/10.21511/ppm.16(1).2018.20Problems and Perspectives in Management Volume 16, 2018 Issue #1 pp. 207-213 Views: 4022 Downloads: 1052 TO CITE АНОТАЦІЯThe article deals with eSports as a perspective kind of commercial activity. The research urgency is determined by the fact that, given the active increase of eSports market with growth rates of more than 30% per year, the types of commercial activities in this field and in scientific papers are not studied in an adequate degree.
The purpose of the article is to evaluate the commercial activity development in eSports and to determine the perspectives for its further growth in Ukraine. In order to determine the key types of commercial activity in eSports, the main sources of revenue in this area compared to sports were investigated, which showed a large unrealized potential for increasing revenues from the sale of tickets to competitions, the realization of broadcasting rights and merchandising. The study also showed that the largest number of income sources in eSports is at the stage of cyber-tournaments, which can be explained by a large consumer audience at this stage. However, unlike the esports world practice, computer game producers and well-known manufacturers of consumer goods in Ukraine do not finance domestic competitions, and, therefore, this stage of commercial activity remains at a low level. In modern conditions, among the types of eSports activities in Ukraine, only the computer games production and the cyber-racers game are properly developed.
According to authors, to improve the eSports development in Ukraine, creating the national system of regular eSports competitions is needed, which will form the basis for the development of most types of commercial activities that are part of the cyber-tournaments. To do this, one needs to create appropriate platforms, as well as improve communications with fans in social networks and at amateur competitions. All this will make eSports a highly profitable business in Ukraine.