Operating Cash Flow Opacity and Stock Price Crash Risk

60 Pages Posted: 5 Mar 2020 Last revised: 13 Jul 2022

See all articles by Agnes Cheng

Agnes Cheng

Hong Kong Polytechnic University; University of Oklahama

Shuo Li

Western Washington University - Department of Accounting; Western Washington University

Eliza Xia Zhang

University of Washington Tacoma; University of Washington, Tacoma

Date Written: January 23, 2020


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, Agnes and Li, Shuo and Li, Shuo and Zhang, Eliza Xia 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

Agnes Cheng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

University of Oklahama ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Shuo Li

Western Washington University ( email )

United States
3606503202 (Phone)

Western Washington University - Department of Accounting ( email )

516 High Street
Bellingham, WA N.A 98225
United States
3606503202 (Phone)

Eliza Xia Zhang (Contact Author)

University of Washington Tacoma ( email )

310 Dougan
Tacoma, WA WASHINGTON 98402
United States
5738235607 (Phone)
5738235607 (Fax)

University of Washington, Tacoma

1900 Commerce Street
Tacoma, WA 98402-3100
United States

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