5 months ago
20
IJFS, Vol. 12, Pages 47: International Diversification and Stock-Price Crash Risk
International Journal of Financial Studies doi: 10.3390/ijfs12020047
Authors: Alireza Askarzadeh Mostafa Kanaanitorshizi Maryam Tabarhosseini Dana Amiri
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.
