Asset Redeployability and Stock Price Crash Risk

44 Pages Posted: 19 Jun 2017 Last revised: 28 Mar 2022

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityU) - Department of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: March 26, 2022

Abstract

Asset redeployability, which is the salability of corporate capital assets, can shape crash risk. On the one hand, asset redeployability enables managers to opportunistically exploit asset transactions to manage earnings and hoard bad news, which in turn increases future stock price crash risk. On the other hand, asset redeployability engenders liquidity benefits that should mitigate future stock price crash risk. Using a novel measure of asset redeployability by Kim and Jung (2017), we find that, on average, asset redeployability is positively associated with stock price crash risk, suggesting that using redeployable assets to manipulate earnings undermines shareholders’ interests. Moreover, we find that this association is stronger for firms experiencing greater internal or external pressure to manage earnings, further confirming that asset transaction earnings management explains the positive association between asset redeployability and stock price crash risk. We contribute to extant research by showing a downside of asset redeployability stemming from managers’ incentives to suppress bad news, particularly when internal or external forces motivate them to manage earnings upward.

Keywords: Asset redeployability; Stock price crash risk; Bad news hoarding; Asset transactions

JEL Classification: G12, G14, G31, M41

Suggested Citation

Chen, Yangyang and Ng, Jeffrey and Pittman, Jeffrey A. and Saffar, Walid, Asset Redeployability and Stock Price Crash Risk (March 26, 2022). Available at SSRN: https://ssrn.com/abstract=2988119 or http://dx.doi.org/10.2139/ssrn.2988119

Yangyang Chen

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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