The Stock Price Crash Risk Puzzle and the Limited Role of Agency-Based Channels

Abstract

Andreou, Lambertides, and Magidou (2023) critique the efficacy of opacity and overinvestment as agency-related channels in explaining stock price crash risk during the post-Sarbanes-Oxley Act period from 2003 to 2019. This study presents updated results using an expanded dataset that spans up to 2022 and considers a broader set of agency-based variables. Regression analysis using the updated sample reveals that the relations between opacity and crashes, as well as overinvestment and crashes, remain non-significant. Similarly, non-significant results emerge when we conduct regression analysis with two indices designed to capture a broader array of agency-related variables.

Keywords: stock price crashes, crash risk, bad news hoarding, agency theory, opacity, overinvestment