Asset Growth and Stock Price Crash Risk
70 Pages Posted: 14 Nov 2019 Last revised: 25 Nov 2019
Date Written: November 6, 2019
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: Suggested Citation