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    Business strategy, overvalued equities, and stock price crash risk

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    Authors
    Habib, A.
    Hasan, Mostafa
    Date
    2017
    Type
    Journal Article
    
    Metadata
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    Citation
    Habib, A. and Hasan, M. 2017. Business strategy, overvalued equities, and stock price crash risk. Research in International Business and Finance. 39 (Part A): pp. 389-405.
    Source Title
    Research in International Business and Finance
    DOI
    10.1016/j.ribaf.2016.09.011
    ISSN
    0275-5319
    School
    Department of Finance and Banking
    URI
    http://hdl.handle.net/20.500.11937/48055
    Collection
    • Curtin Research Publications
    Abstract

    This paper examines empirically the effect of firm-level business strategies on future stock price crash risk, and the extent to which equity overvaluation moderates this relation. By exploring the extent to which firms following particular business strategies are more or less likely to experience crash risk, we provide evidence that increases our understanding of the underlying determinants of crash risk. Using a composite strategy score developed by Bentley, Omer and Sharp (2013) and applying two variants of crash risk, we document that firms following innovative business strategies (prospectors) are more prone to future crash risk than defenders. We also find that prospectors are more prone to equity overvaluation which, in turn, increases future crash risk.

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