Operating Cash Flow Opacity and Stock Price Crash Risk

Posted: 5 Mar 2020

See all articles by C.S. Agnes Cheng

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Shuo Li

Western Washington University

Eliza Xia Zhang

University of Washington, Tacoma

Date Written: January 23, 2020

Abstract

We examine the relation between operating cash flow (OCF) opacity and stock price crash risk. We find that OCF opacity is positively associated with future stock price crash risk after controlling for accruals opacity and other determinants known to influence crash risk. This finding suggests that OCF opacity facilitates bad news hoarding and enables managerial resource diversion, which in turn increases crash risk. We also find that the positive relation between OCF opacity and crash risk is more pronounced when external monitoring is weak, information asymmetry is high, OCF importance is low, and cost of accruals management is high. Overall, our evidence highlights the severe consequence of OCF opacity in that it boosts crash risk; our study should alert the researchers, investors, and regulators to pay more attention to OCF management.

Keywords: OCF opacity; OCF management; accruals opacity; stock price crash risk

JEL Classification: G30, M41

Suggested Citation

Cheng, C.S. Agnes and Li, Shuo and Zhang, Eliza Xia, Operating Cash Flow Opacity and Stock Price Crash Risk (January 23, 2020). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3524178

C.S. Agnes Cheng

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

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Shuo Li

Western Washington University ( email )

United States
3606503202 (Phone)

Eliza Xia Zhang (Contact Author)

University of Washington, Tacoma

1900 Commerce Street
Tacoma, WA 98402-3100
United States

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

Paper statistics

Abstract Views
496
PlumX Metrics