Article

International Diversification and Stock-Price Crash Risk

Alireza AskarzadehDepartment of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USAMostafa KanaanitorshiziDepartment of Finance, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USAMaryam TabarhosseiniDepartment of Management, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USADana AmiriDepartment of Marketing, Strome College of Business, Old Dominion University, 2094 Constant Hall, Norfolk, VA 23529, USA

2024en

ABI

Abstract

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.

Identifiers

DOI: 10.3390/ijfs12020047

Citations and references

Cited by 20 references

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