Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Corporate Governance and Stock Price Crash Risk

Author(s): Kyeongmin Jeon

This study examines whether there is an association between corporate governance and stock price crash risk. A large body of literature reports that a prominent factor of stock crash risk is the managerial tendency of withholding bad news from investors due to compensation contracts and career concerns. This study aims to verify whether good governance structures (characteristics of the board of directors) help restrict these opportunistic managerial behaviors. To test the hypothesis, this study performs the logit and OLS regression model using 3,635 data of listed Korean firms from 2006 to 2015. This research provides a direct evidence for the relationship between stock crash risk and characteristics of governance, particularly the characteristics of the BODs. The findings suggest that irrespective of the size of the board, if there are independent and expert directors’ present, corporate governance may have an impact on the reduction of stock price crash risk. This paper contributes by extending the literature on corporate governance. Despite the importance of board compositions, there is no prior research examining the relation between the characteristics of the BOD and stock price crash risk.