Business strategy, overvalued equities, and stock price crash risk

Ahsan Habib*, Mostafa Monzur Hasan

*Corresponding author for this work

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

This paper examines empirically the effect of firm-level business strategies on future stock price crash risk, and the extent to which equity overvaluation moderates this relation. By exploring the extent to which firms following particular business strategies are more or less likely to experience crash risk, we provide evidence that increases our understanding of the underlying determinants of crash risk. Using a composite strategy score developed by Bentley, Omer and Sharp (2013) and applying two variants of crash risk, we document that firms following innovative business strategies (prospectors) are more prone to future crash risk than defenders. We also find that prospectors are more prone to equity overvaluation which, in turn, increases future crash risk.

Original languageEnglish
Pages (from-to)389-405
Number of pages17
JournalResearch in International Business and Finance
Volume39
DOIs
Publication statusPublished - 1 Jan 2017
Externally publishedYes

Keywords

  • Business strategies
  • Equity overvaluation
  • Stock price crash risk

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