Competitive Culture and Stock Price Crash Risk
84 Pages Posted: 8 Jul 2020 Last revised: 10 Jul 2020
Date Written: June 12, 2020
In this study, we investigate whether and how firms’ competitive culture affects their risks of experiencing future stock price crashes. In so doing, we argue and find that firms with greater levels of competitive culture are in fact more likely to experience future idiosyncratic stock price crashes. In particular, we adopt a well-known measure of competitive culture, which we develop by conducting a textual analysis of firm’s 10-K filings. Using this measure, we demonstrate that firms with more intensive competitive culture are susceptible to experience future firm specific stock price crashes. We argue that this phenomenon is consistent with managers at greater competitive culture firms being more motivated towards the aggressive pursuit of superior financial performance. Further, we argue that this in turn leads managers at such firms to systematically withhold bad news that once released to the market increases the risk of stock price crashes. Our findings have corporate governance and other policy implications, since they identify firm’s competitive culture as a channel through which firms’ values and operating philosophy affects shareholder value (i.e. increased crash risk) among other firm specific economic outcomes.
Keywords: Competitive culture; Crash risk; Textual analysis; 10-K filings
JEL Classification: G20, G32, G34, G38, M48
Suggested Citation: Suggested Citation