고평가된 자본과 주가폭락 위험

초록

We examines whether overvalued equity affects a firm’s future crash risk in stock prices. Equity is overvalued when its market value is far above its underlying value. Jensen (2005) proposes that overvaluation leads to value-destroying opportunistic earnings management as well as overinvestment, accounting manipulation and even fraudulent practices to continue the appearance of growth and value creation. Thus, the managers of overvalued firms use earnings management to window-dress the performance of their firms in an attempt to support the unjustified high price of their stocks. The distortion in reported earnings of overvalued firms severs the effective communication between managers and investors. Investors of overvalued firms only have access to limited firm-specific information now. Prior evidence shows that overvalued firms have significantly higher discretionary accruals in the next period (e.g., Houmes and Skantz 2010; Badertscher 2011; Coulton et al. 2015 etc.). This is, prior researches has provided empirical evidence consistent with Jensen’s (2005) conjecture. So if a firm’s manager of overvalued equity withholds and accumulates negative information for an extended period, the firm’s share price will be severely overvalued, thereby creating a bubble. Whereas, when the accumulated negative information reaches a tipping point, it will be suddenly released to the stock market, all at once, resulting in the bubble bursting and its future stock price crash risk. To examine the relation between overvalued equity and firm-specific stock price crash risk, we use four proxies for overvalued equity (i.e., PER, PBR, PFCFR, AbnRET), following Park and Kim (2019) and following Rhodes-Kropf et al. (2005), we use abnormal measure. We also identify overvalued equity (hereafter OVE) is an indicator variable equal to 1 if the firm has been in the top quintile of PER, PBR, PFCFR, and AbnRET in year t, and 0 otherwise, respectively. Following Chen et al. (2001), Hutton et al. (2009), Kim and Zhang (2014), and Kim et al. (2016b), we measure firm-specific crash risk by the probability of extreme negative firm-specific weekly returns (Crash), the negative skewness of firm-specific weekly returns (NCSKEW), and the asymmetric volatility of negative versus positive firm-specific weekly r eturns (DUVOL) in year t+1. Our sample covers KOSPI and KOSDAQ listed f irms with available data in non-financial industries with fiscal year-end in December from 2004 to 2018 based on the dependent variable. Our empirical results reveal the following. First, consistent with our prediction, we find that the positive and significant association between overvalued equity and future stock price crashes, specifically overvaluation proxies for the both PBR and PFCFR measures, as well as our three measure of crash risk (i.e., Crash, NCSKEW, and DUVOL). We also measure OVE proxy using the approach Rhodef-Kropf et al. (2005) and the results are similar. These results show that overvaluation leads to value-destroying opportunistic earnings management. Therefore, The result is consistent with the conjecture of Jensen (2005), overvalued firms choose to use more earnings management, and associate with higher level of financial opacity. Thus, all at once, a firm’s overvalued equity increases its chance to experience price crash in subsequent period. Second, we also find that the impact of overvalued equity on crash risk is more pronounced for firms with lower financial reporting quality (proxied by more opaque financial reports, following Hutton et al. (2009)). Finally, in addition, we also find that the impact of overvalued equity on crash risk is more pronounced for firms with higher information asymmetry (proxied by higher volatility of daily stock returns), and for those with lower foreign investor ownership with external monitoring role. In summary, we know that substantial overvaluation can set into motion value-destroying actions by managers of overvalued firms. They manage earnings more aggressively to conceal firm-specific information from the investors. And when the negative information accumulates to such a point that they can not hide it anymore, the release of the big chunk of negative information causes its stock to crash in subsequent period. Our results add to the understanding of the consequences of overvalued equity. We also contribute to the literature of stock price behaviors by providing a new predictor for crash risk in Korea listed firms’ setting. More importantly, to the extent that overvalued equity capture earnings management to predict future stock price crash risk.

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