Do Innovations Hoard Bad News? Evidence from Stock Price Crash Risk

45 Pages Posted: 24 Sep 2016 Last revised: 2 Apr 2017

See all articles by Hamdi Ben‐Nasr

Hamdi Ben‐Nasr

King Saud University - College of Business Administration

Lobna Bouslimi

Concordia University, Quebec

Rui Zhong

The University of Western Australia - UWA Business School

Date Written: January 2, 2017

Abstract

Do opportunistic managers use innovation activities to manipulate information flow to equity market? Using a large sample of U.S. firms, we show that innovation-related activities alleviate managers’ opportunistic behavior to withhold bad news. Specifically, we document a significantly negative relation between the number of patents (citations) and the likelihood of experiencing firm-specific stock price crashes in future. Our findings are consistent with the arguments that innovation activities discipline managers to enhance the revelation of firm-specific information. Further, we find that such impact of innovations on stock price crashes is more pronounced in firms with weak corporate governance and high information opacity. Our findings provide new evidence on the real effects of innovations on equity market.

Keywords: Crash risk, Innovations, Information hoarding

JEL Classification: G14, G30, G32, M40, O31

Suggested Citation

Ben-Nasr, Hamdi and Bouslimi, Lobna and Zhong, Rui, Do Innovations Hoard Bad News? Evidence from Stock Price Crash Risk (January 2, 2017). Available at SSRN: https://ssrn.com/abstract=2485754 or http://dx.doi.org/10.2139/ssrn.2485754

Hamdi Ben-Nasr

King Saud University - College of Business Administration ( email )

B.P. 2459
Riyad, 11451
Saudi Arabia

Lobna Bouslimi

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Rui Zhong (Contact Author)

The University of Western Australia - UWA Business School ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
284
Abstract Views
1,198
rank
150,005
PlumX Metrics