Examine the effect of Institutional Investors on Reduce Stock Price Crash Risk

This study investigates the effect of institutional investors on stock price crash risk reduction in companies listed in Tehran Stock Exchange. Crash of stock price is a phenomenon where stock price will suffer an unexpected severe negative adjustment (Chen, J. , H. Hong, et al, 2001). One of the most important methods for manipulating accounting information is expediting the identification of good news versus postponing bad news in profits (Callen, J. L. and X. Fang, 2011). But always there will be a final level for accumulating bad news in the company, and with achieving the final level, this bad news will be published, which is that the company’s stock price crash.
In this study, the numbers of stock prices crash of Hutton’s model (2009) is used to measure stock prices crash for 56 companies listed in Tehran Stock Exchange from period of1380 to 1389. In the present study strong evidences are provided that the existence of institutional investors will significantly reduce the probability of the stock price crash probability.