The Effect of Business Strategy and Overvalued Equities on Stock ‎Price Crash Risk

Companies generally use prospector and defender strategies. The prospector companies usually tend to keep the bad news thus the level of information asymmetry in the prospector companies is higher than defender ones and the crash risk of stock prices in these companies is higher, as well. Overvalued equities means higher stock market price than its inherent value. The companies whose shares are overvalued are also at crash risk of stock prices. Thus, the aim of this study was to investigate the effect of business strategy and overvalued equities on crash risk of stock prices. In this study, data from 74 firms listed in the Tehran Stock Exchange during the period 2007 to 2016 has been used. The results suggest that business strategies and over valuation of stock prices have a significant positive effect on crash risk. That is in the prospector companies and companies with over-valued stock valuations, crash risk of stock prices is higher. The results also showed that the high stock valuation has not a significant effect on the relationship between business strategy and crash risk.