The Relationship Between Investment Efficiency and Stock Price Crash Risk with Emphasis on Information Asymmetry

A secure environment for investment and lack of information asymmetry are characteristics of a good business which managers working toward the promotion of shareholder’s interest. In such an environment, the managers tend to increase the firm value by applying optimal investing strategies and also preventing the severe price volatility. Therefore, the purpose of this study is to investigate the relationship between investment efficiency and stock price crash risk in the listed companies in Tehran Stock Exchange. In this order, data are collected from 120 companies for the period of 2010-2015. Panel data model is used to test the research hypotheses. The findings related to the first hypothesis show that there is a positive relationship between the investment efficiency and the stock price crash risk. In this research, the sample companies are categorized by the output market competition index and the advertising cost. Low level of competition in output market and high level of the advertising costs measure high information asymmetry in the companies. The results of the second hypothesis show that the positive relationship between the investment efficiency and stock price crash risk in a company with high information asymmetry is stronger than one with low information asymmetry.