Essays on stock price crashes : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey University

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dc.confidentialEmbargo : No
dc.contributor.advisorMarshall, Ben
dc.contributor.authorRoy, Suvra
dc.date.accessioned2024-04-03T00:21:19Z
dc.date.available2024-04-03T00:21:19Z
dc.date.issued2024-03-29
dc.description.abstractThis thesis comprises three essays that contribute to the literature on the consequences of stock price crashes. Essay One explores the post-crash responses of managers, the motives behind those responses, and the effects of those management responses on shareholders. The essay finds that managers of the crashed firms change their course of action to regain the trust of investors and improve firm value. Managers shift their attention towards enhancing transparency, optimizing investments, resolving internal conflicts, and investing in social capital and employee well-being. These initiatives contribute to enhancing the firm's value. Furthermore, this research proposes that management engages in these measures with consideration for their job security. Essay Two investigates the extent to which firm systematic risk changes following stock price crashes. It shows that stock price crashes result in increased systematic risk. This is evident across firms with both low and high betas. The higher systematic risk following a crash primarily stems from heightened default risk and results in equity financing becoming more expensive. Essay Three examines whether a firm price crash leads to the returns of the firm’s non-crash peer firms co-moving more with the returns of the market. The essay finds that this does occur. Investors focus more on firms that have experienced a crash while paying less attention to their non-crashed peer firms. This suggests that the investor trading behavior of these peer firms relies less on specific stock-related news and more on general market trends. The essay does not find any evidence to consider internal as well as external monitoring and information asymmetry as possible mechanisms of investor distraction. Overall, these essays provide contributions to the literature on stock price crash risk, financial markets, and corporate risk management. The thesis highlights how stock price crashes impact management responses, systematic risk, and the behavior of non-crashing peer firms, offering valuable insights for managers, investors, and market regulators to manage and respond to such events effectively. The thesis suggests that managers need to ensure their actions are taken post-crashes and potentially even before to prevent adverse events. Increased firm beta post-crash affects equity financing, portfolio management, risk assessment, and hedging decisions. Understanding firms’ systematic risk holds implications for managers, portfolio managers, and market regulators to manage firm systematic risk effectively. This thesis also documents a new source of return co-movement distinct from market-level shocks.
dc.identifier.urihttps://mro.massey.ac.nz/handle/10179/69427
dc.publisherMassey Universityen
dc.publisherListed in 2024 Dean's List of Exceptional Thesesen
dc.rightsThe Authoren
dc.subjectStocksen
dc.subjectPricesen
dc.subjectRisken
dc.subjectMathematical modelsen
dc.subjectManagementen
dc.subjectEconomic aspectsen
dc.subjectDean's List of Exceptional Thesesen
dc.subject.anzsrc350208 Investment and risk managementen
dc.titleEssays on stock price crashes : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey Universityen
thesis.degree.disciplineSchool Economics and Finance
thesis.degree.nameDoctor of Philosophy (Ph.D.)
thesis.description.doctoral-citation-abridgedWhile stock-price crash causes are known, post-crash dynamics are underexplored. Mr. Roy investigated post-crash management responses and their outcome, and effects on beta, equity costs, and non-crashed peers. Results highlighted management’s efforts to rebuild trust via transparency, investment efficiency, and reduced conflicts. Increased beta post-crash raised equity financing costs. Also noted was return co-movement among non-crashed peers and the market.
thesis.description.doctoral-citation-longThe aftermath of stock price crashes, following scandals like Enron, Xerox, and WorldCom in the early 2000s, garners heightened scrutiny from academia and industry. While the causes of crashes are well-documented, post-crash dynamics remain less documented. Mr. Roy investigated post-crash management’s responses and their outcome, and effects on beta, equity costs, and non-crashed peers. Results highlighted management's efforts to rebuild trust through transparency, investment efficiency, reduced agency conflicts, and ESG investment. Increased beta post-crash raised equity financing costs. He also found return co-movement between the non-crashed peer firms and the market. His study has implications for investors, practitioners, and regulators.
thesis.description.name-pronounciationSHUV RO ROY
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