Nothing but good intentions: the search for equity and stock price crash risk

Doron Reichmann (), Rouven Möller () and Tobias Hertel ()
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Doron Reichmann: Ruhr University Bochum
Rouven Möller: Ruhr University Bochum
Tobias Hertel: Ruhr University Bochum

Journal of Business Economics, 2022, vol. 92, issue 9, No 3, 1455-1489

Abstract: Abstract In this study, we examine whether and how managers’ intentions to raise equity are associated with future stock price crash risk. Therefore, we apply modern information retrieval techniques to corporate textual disclosures by constructing document embeddings that preserve contextual relationships in managers’ discussions on liquidity and capital resources. Using these document embeddings, we construct a continuous measure of managers’ intentions to raise equity. We document that the search for equity is associated with higher future stock price crash risk. Further analyses suggest that managers with stronger intentions to raise equity are more likely to block negative news flow and that these intentions reinforce the effects of earnings manipulation and textual obfuscation on stock price crash risk. In summary, our results suggest that managers’ search for equity incentivises managerial bad news hoarding.

Keywords: Stock price crash risk; Information opacity; Agency theory; Natural language processing; Textual disclosures; Equity finance; Information retrieval (search for similar items in EconPapers)
JEL-codes: G12 G14 G32 M41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11573-022-01085-w

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