How M&A Laws Affect the Risk of Stock Price Crashes

In a new cross-nation study, we discuss our findings on how the takeover market affects stock-price crash risk, defined as the likelihood of a sudden, drastic decline in the stock price of a firm. An important consideration for risk management and investment decisions, crash risk has received much interest in recent years from academics, regulators, and practitioners due to the series of high-profile corporate scandals (e.g., Enron, WorldCom, Satyam) and the financial crisis of the last decade.

Prior research suggests that the risk of security price crashes stems from agency problems (i.e., managers do not act in the best interests … Read more