The Interactive Effect of Ownership Structure on the Relationship between Annual Board Report Readability and Stock Price Crash Risk

Abstract

This study investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk in companies listed on the Tehran Stock Exchange (TSE). The negative skewness model was used to measure the crash risk of stock prices and the Fog index was used for determining the readability of the board of directors’ report. The ownership structure is examined in institutional ownership, significant managerial ownership, and family ownership. The data of companies listed on the TSE from 2013 to 2019 have been used. The statistical method of this research is multiple regressions and, to test the research hypotheses, the data panel model and the ordinary least squares method have been employed. Overall, this study provides new evidence to explain the reporting quality and the crash risk of stock prices from the lenses of the agency theory. It further investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk. The results show a significant correlation between the readability of the board of directors’ report and the crash risk of stock prices. Furthermore, the relationship between the readability of the board report and stock price crash risk is not affected by the ownership structure, including institutional ownership, significant managerial ownership, and family ownership. It can be inferred that an ownership structure, which includes institutional shareholders, significant shareholders, and family ownership, increases the supervision of managers and their reports, so they cannot keep adverse information from being released. This will ultimately improve the readability of their reports and reduce the risk of stock price crashes.

The Impact of Ownership Type on Labour Cost Stickiness

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The Relationship between Changes in Corporate Governance Characteristics and Intellectual Capital

“…The population consists of all the companies listed on the Tehran Stock Exchange (TSE) from 2011 to 2020. Data are primarily based on the TSE's audited financial statements and board reports, a reliable source of information (Nassirzadeh et al 2022;Shandiz et al 2022;and Daryaei et al 2022).The selected firms needed to meet the following three conditions to be included in the current study:…”

“…We have selected the above specified control variables as they have been suggested and used in the literature information (Nassirzadeh et al 2022;Shandiz et al 2022;and Daryaei et al 2022). INDCH i,t (change in board independence): To measure this variable, the ratio of the number of nonexecutive directors to the total number of board members has been used.…”

Accounting Comparability, Conservatism, Executive Compensation-Performance, and Information Quality

“…All listed companies, banks, insurance companies, and other financial institutions are required to use IFRS Standards. Data is primarily based on audited financial statements and board reports of the TSE, a reliable source of information (Shandiz et al 2022); despite political disputes with Western countries that eventually ended, Iran occupies a unique position globally and is highly interested in international investing. The study population includes all TSE companies for the period 2010-2019.…”