Asset Redeployability and Stock Price Crash Risk

53 Pages Posted: 19 Jun 2017 Last revised: 30 Aug 2019

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: August 29, 2019

Abstract

There is tension underlying whether asset redeployability, which refers to the salability of corporate capital assets, shapes crash risk. On one hand, asset redeployability enables managers to opportunistically exploit asset sales to manage earnings upwards to hoard bad news, which, in turn, increases future stock price crash risk. On the other hand, greater asset redeployability engenders liquidity benefits that should mitigate future stock price crash risk. We find that, on average, asset redeployability is positively associated with stock price crash risk, suggesting that relying on redeployable assets to orchestrate upward earnings undermines shareholders’ interests. Reinforcing that asset sales earnings management explains the positive association between asset redeployability and stock price crash risk, we find that this association is stronger for firms experiencing greater internal and external pressure to manage earnings. We contribute to extant research by providing evidence implying that asset redeployability has a dark side stemming from managers’ incentives to suppress bad news, particularly when internal and external forces motivate them to manage earnings upward.

Keywords: Asset Redeployability, Stock Price Crash Risk, Bad News Hoarding, Asset Sales

JEL Classification: G12, G14, G31, M41

Suggested Citation

Chen, Yangyang and Ng, Jeffrey and Pittman, Jeffrey A. and Saffar, Walid, Asset Redeployability and Stock Price Crash Risk (August 29, 2019). Available at SSRN: https://ssrn.com/abstract=2988119 or http://dx.doi.org/10.2139/ssrn.2988119

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
398
Abstract Views
2,869
rank
90,242
PlumX Metrics