Competitive Culture and Stock Price Crash Risk

84 Pages Posted: 8 Jul 2020 Last revised: 10 Jul 2020

See all articles by Panayiotis C. Andreou

Panayiotis C. Andreou

Cyprus University of Technology

Terry Harris

Durham University Business School

Dennis Philip

Durham University - Department of Economics and Finance

Wenrui Zhang

Durham University Business School

Date Written: June 12, 2020

Abstract

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

Andreou, Panayiotis C. and Harris, Terry and Philip, Dennis and Zhang, Wenrui, Competitive Culture and Stock Price Crash Risk (June 12, 2020). Available at SSRN: https://ssrn.com/abstract=3625892

Panayiotis C. Andreou

Cyprus University of Technology ( email )

School Of Management and Economics
P.O. Box 50329
Lemesos, 3036
Cyprus

HOME PAGE: http://www.pandreou.com

Terry Harris (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Dennis Philip

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Wenrui Zhang

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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