Divergence of Cash Flow and Voting Rights, Opacity, and Stock Price Crash Risk : International Evidence

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Original languageEnglish
Pages (from-to)1167-1212
Journal / PublicationJournal of Accounting Research
Issue number5
Online published11 Nov 2017
Publication statusPublished - Dec 2017


This study investigates whether and how the deviation of cash flow rights (ownership) from voting rights (control), or simply the ownership-control wedge, influences the likelihood that extreme negative outliers occur in stock return distributions, which we refer to as stock price crash risk. We do so using a comprehensive panel data set of firms with a dual-class share structure from 20 countries around the world for the period of 1995–2007. We predict and find that opaque firms with a large wedge are more crash prone than opaque firms with a small wedge. In addition, we predict and find that the positive relation between the wedge and crash risk is less pronounced for firms with more effective external monitoring and for firms with greater growth opportunities. The results of this study are broadly consistent with Jin and Myers’s theory that agency costs, combined with opacity, exacerbate stock price crash risk. Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2017

Research Area(s)

  • IFRS, information opacity, ownership-control wedge, stock price crash risk

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