본 연구는 기업의 고평가된 자본이 차기 주가폭락 위험과 관련성이 있는지를 실증적으로 규명하는데 있다. Jensen(2005)은 주가가 고평가된 자본의 경영자는 이를 유지하기 위하여 가치파괴적인 이익조정을 수행한다고 주장한다. 이를 알아본 선행연구들은 자본이 고평가된 기업은 차기 보고이익을 상향조정한다는 결과를 보고하였다(Houmes and Skantz 2010; Badertscher 2011 등). 따라서 본 연구는 자본이 고평가된 기업은 이익조정에 대한 부정적인 정보를 감추려는 경영자의 유인이 있고, 이러한 부정적인 정보의 누적은 이후 일시에 악재로 주식시장에 반영되면 급격한 주가폭락으로 이어질 것으로 예상하였다. 이를 알아보기 위하여 본 연구는 고평가된 자본(OVE)의 대용치로 네 가지(예로, PER, PBR, PFCFR, AbnRET)를 이용하고, 각 OVE를 기준으로 5분위수로 나눈 후 가장 높은 상위분위수에 속하면 1, 아니면 0으로 측정하였다. 또한 주가폭락 위험은 Kim et al.(2016b)의 세 가지로 측정치를 이용하였다. 종속변수를 기준으로 2004년부터 2018년까지 유가증권 및 코스닥상장기업을 대상으로 실증분석한 결과는 예상과 일치하게 자본이 고평가된 기업은 그렇지 않은 경우보다 차기주가폭락 위험이 높은 것으로 나타났다. 한편, 추가분석에 의하면 앞서의 양(+)의 관계는 재무보고의불투명성(Hutton et al.(2009)의 측정치)이 높은 기업일 때, 정보비대칭 수준이 높을 때, 외국인지분율로 측정된 지배구조의 모니터링 효과가 취약할 때 더 뚜렷한 결과로 나타났다. 따라서 본 연구는고평가된 자본과 차기의 주가폭락 위험 간에 양(+)의 상관관계가 있음을 국내 상장기업들의 실증적 증거를 처음으로 보여주었다는 데 의미가 있다. 또한 본 연구는 선행연구에서 살펴보지 않았던 재무보고의 질, 정보비대칭 수준, 외부지배구조가 고평가된 자본과 주가폭락 위험의 관계에 영향을 줄 수 있음을 보여주고 있어 관련 연구에 새로운 증거를 제공한다.
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.
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.
