Using threshold regression to analyze the impact of external earnings pressure on stock price crash risk based on management tone in China

Kuang-Cheng Chai, Jia-Hui Zhang, Zi-Lu Wang, Yu-Tian Qiu, Yen-Chun Lai, Ke-Chiun Chang and Yang Yang

Applied Economics, 2024, vol. 56, issue 51, 6273-6287

Abstract: Each stock market crash, from the 2015 China crash to the 2020 new coronavirus crash, has left investors terrified and hit China’s economy hard. Companies that fail to meet financial analysts’ surplus forecasts can trigger a negative market reaction. This reaction directly affects management and investor decisions and increases the risk of corporate share price collapse. Corporate management will therefore attempt to restrain excessive investor expectations by releasing a negative management tone designed to induce investors to invest scientifically and rationally, thereby reducing the risk of share price collapse. This study empirically examines the impact of external earnings pressure on stock price crash risk. It determines whether management tone has a threshold effect using, data on A-share listed companies in Shenzhen and Shanghai, China, covering 2014 to 2020. The results show that external earnings pressure significantly increases the risk of the stock price collapse; management tone has a single threshold effect on external earnings pressure and stock price collapse risk; a significantly negative correlation is observed between external earnings pressure and stock price collapse risk when management tone is below the threshold. This study provides sound advice for analysts, management and investors to better prevent and control risk.

Date: 2024
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DOI: 10.1080/00036846.2023.2273233

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