Asset Growth and Stock Price Crash Risk

70 Pages Posted: 14 Nov 2019 Last revised: 25 Nov 2019

See all articles by Siu Kai Choy

Siu Kai Choy

King's College London

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Ying Zheng

Sun Yat-sen University

Date Written: November 6, 2019

Abstract

Given the managerial incentive for empire-building, we show that higher asset growth significantly predicts higher future crash risk. Higher asset growth is also related to lower future profitability. Moreover, agency problems tend to accentuate the asset growth-crash risk relationship whereas conditionally conservative accounting practices have attenuating effects. Our results suggest that stockpiled bad news from asset growth contributes to future crash risk. Despite the popularity of studying asset growth and future stock returns in the literature, our different focus on higher moments of returns shed lights on the debate of the consequences of bloated balance sheets on stock prices.

Keywords: Crash risk; Asset growth; Bad news hoarding; Agency problem; Conservatism

JEL Classification: G12, G30, M41

Suggested Citation

Choy, Siu Kai and Lobo, Gerald J. and Zheng, Ying, Asset Growth and Stock Price Crash Risk (November 6, 2019). Available at SSRN: https://ssrn.com/abstract=3481709 or http://dx.doi.org/10.2139/ssrn.3481709

Siu Kai Choy (Contact Author)

King's College London ( email )

Strand
London, WC2R 2LS
United Kingdom

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Ying Zheng

Sun Yat-sen University ( email )

Guangdong Province
China

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