Agency Theory & Stock Price Crash Risk: Evidence from Tehran Stock Exchange

Using structural equation modeling approach, this research aims to explore the effect of agency costs on stock price crash risk. For this purpose, 110 publicly listed firms from Tehran Stock Exchange for the period 2002 to 2014 are selected as final data set. As an independent variable, the observable variables such as firm size, leverage ratio, profitability ratio, Tobin's q, assets utilization ratio and free cash flow ratio are used to proxy the agency cost. In addition, stock crash risk based Hutton et al. (2009) and Kim et al. (2011, 2014) models are used as depend variable and disclosure quality, CFO opacity and earnings opacity are entered to the model as control variables. The results showed that agency costs have a negative and meaningful effect on first index of stock price crash risk but there is no significant relationship between agency costs and other indices of stock price crash risk. Also, the results show That disclosure quality has a negative and meaningful effect on stock price crash risk but CFO opacity and earnings opacity have not significant effect on stock price crash risk.