International Diversification and Stock-Price Crash Risk

Alireza Askarzadeh (), Mostafa Kanaanitorshizi, Maryam Tabarhosseini and Dana Amiri
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Alireza Askarzadeh: Department of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA
Mostafa Kanaanitorshizi: Department of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA
Maryam Tabarhosseini: Department of Management, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA
Dana Amiri: Department of Marketing, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA

IJFS, 2024, vol. 12, issue 2, 1-17

Abstract: Despite the recent proliferation of research on internationalization, little attention has been paid to understanding the reasons behind the decrease in firm value accompanying international expansion. By delving into the underlying mechanisms and applying the concept of agency theory to a sample of US firms spanning from 2000 to 2022, we posit that an increased level of information asymmetry in internationally diversified firms incentivizes managers to prioritize their own interests. To protect their careers, CEOs of internationally diversified firms often suppress bad news. This behavior can lead to the accumulation of negative news and heighten the risk of a stock-price crash. Furthermore, we propose that higher levels of international experience, enhanced monitoring effectiveness, and efficient investment practices will negatively moderate the positive relationship between internationalization and stock-price crash risk.

Keywords: stock-price crash risk; internationalization; agency costs; information asymmetry (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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