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On the Informational Role of Delayed Good News: A Firm-Level Crash Risk Evidence from Egypt

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  • Abd El-Rahman M. Selmy
  • Khairy A. El-Giziry

Abstract

There is controversy regarding the impact of delayed good news and information asymmetry in financial reporting on firm-level crash risk. In the current exposure draft on the conceptual framework of financial reporting, information asymmetry is not considered a desired characteristic. We presented a framework for the demand for conservatism to mitigate information asymmetry and thus, decreasing the potential exposure to firm-level crash risk. Kim and Zhang (2010) claimed and provided evidence that conservatism is incrementally significant as a proxy of information asymmetry for predicting firm-level crash risk. If that claim is true, however, it will be sensible to argue that information asymmetry is non-trivial for firm-level crash risk assessment. Toward that end, this study directly tests if the timeliness of good news is trivial for firm-level crash risk assessment by specifying the firm-level crash risk in terms of a conservatism model. The study employed sample data from Egypt's capital market, which defines a setting dominated lately by firm-level crashes. We found evidence that timeliness of good news versus bad news explained by information asymmetry is significantly increasing the probabilities of experiencing firm-level crash risk; however, we found that conservatism reduces information asymmetry which eventually reduces the potential exposure to firm-level crash risk.

Suggested Citation

  • Abd El-Rahman M. Selmy & Khairy A. El-Giziry, 2016. "On the Informational Role of Delayed Good News: A Firm-Level Crash Risk Evidence from Egypt," Accounting and Finance Research, Sciedu Press, vol. 5(3), pages 1-44, August.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:3:p:44
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    References listed on IDEAS

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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