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International Diversification and Stock-Price Crash Risk

Author

Listed:
  • Alireza Askarzadeh

    (Department of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA)

  • Mostafa Kanaanitorshizi

    (Department of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA)

  • Maryam Tabarhosseini

    (Department of Management, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA)

  • Dana Amiri

    (Department of Marketing, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA)

Abstract

Despite the recent proliferation of research on internationalization, little attention has been paid to understanding the reasons behind the decrease in firm value accompanying international expansion. By delving into the underlying mechanisms and applying the concept of agency theory to a sample of US firms spanning from 2000 to 2022, we posit that an increased level of information asymmetry in internationally diversified firms incentivizes managers to prioritize their own interests. To protect their careers, CEOs of internationally diversified firms often suppress bad news. This behavior can lead to the accumulation of negative news and heighten the risk of a stock-price crash. Furthermore, we propose that higher levels of international experience, enhanced monitoring effectiveness, and efficient investment practices will negatively moderate the positive relationship between internationalization and stock-price crash risk.

Suggested Citation

  • Alireza Askarzadeh & Mostafa Kanaanitorshizi & Maryam Tabarhosseini & Dana Amiri, 2024. "International Diversification and Stock-Price Crash Risk," IJFS, MDPI, vol. 12(2), pages 1-17, May.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:2:p:47-:d:1395399
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    References listed on IDEAS

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