Prospector and Defender Business strategy, Information Asymmetry, and Stock Price Crash
Subject Areas : Financial engineering
1 - 1 Associate Professor, Department of Accounting, East Tehran Branch, Islamic Azad University, Tehran, Iran
Keywords: Information Asymmetry, Business Strategy, Prospector strategy, Defender strategy, and Stock Price Crash,
Abstract :
Firms must follow a business strategy for success in the competition. There are two proposed strategies of Prospector and Defender firms. Defenders aims in decreasing costs and prices, however, prospectors conduct innovation and high level of R&D expenditures and try to differentiate their product from competitors. But this approach increase future Stock Price Crash, because one of causes can lead the firm to crash risk is bad news hoarding within the firm. With issuing the bad news, stock price experiences crash suddenly. This paper examines empirically the effect of firm-level business strategies on future stock price crash risk. In the mean time, it is expected in the higher asymmetry information condition, prospect strategy increase crash risk more. To achieve the research’s goals, we selected 117 firms listed in Tehran Stock Exchange as a sample during 2011-2015. To examine research hypotheses we employed multivariate regression with panel data. The finding indicate prospect strategy increase crash risk, however, defend strategy will decrease it. We also found that in the higher asymmetry information condition, prospectors are more prone to increases future crash risk.
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