Intangible Intensity and Stock Price Crash Risk

64 Pages Posted: 16 Jan 2020 Last revised: 17 Jan 2020

See all articles by Kai Wu

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Seiwai Lai

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: December 15, 2019

Abstract

We evaluate the effect of intangible intensity on stock price crash risk for listed US firms from 1983 to 2017. We find that intangible-intensive firms are associated with significantly higher stock price crash risk. Decomposition of intangible intensity show that goodwill intensity is the driving force of crash risk, as it predicts future goodwill impairments, increases investors' opinion divergence and valuation uncertainty. The results support the information asymmetry being identified as the underlying channel. Furthermore, the effect of intangible intensity is stronger in firms facing high product market competition, CEO incentives, and external monitoring. Overall, our findings demonstrate the fragility of intangible assets and provide implications for financial regulation and portfolio risk management.

Keywords: intangible intensity, information asymmetry, crash risk

JEL Classification: G10, G11, G14

Suggested Citation

Wu, Kai and Lai, Seiwai, Intangible Intensity and Stock Price Crash Risk (December 15, 2019). Available at SSRN: https://ssrn.com/abstract=3511418 or http://dx.doi.org/10.2139/ssrn.3511418

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Seiwai Lai

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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