Conservative Capital Structure and Stock Price Crash Risk: The Moderating Role of Information Asymmetry and Firm Life Cycle

The purpose of this research is to investigate the effect of capital structure determination policy (conservative and non-conservative policy) on the stock price crash risk. The data of 143 companies admitted to Tehran Stock Exchange during the period of 2014-2015 was analyzed using multiple regression with the control of year and industry fixed effects. Conservative capital structure does not have a significant effect on the stock price crash risk. It also highlights the information asymmetry, the relationship between the conservative capital structure and the stock price crash risk; But the life cycle of the company does not have a significant effect on the relationship between the conservative capital structure and the stock price crash risk. Companies with a conservative capital structure are more likely to use suitable investment opportunities on the one hand and reduce opportunistic behavior on the other hand, and are less likely to face the stock price crash risk. This conclusion also applies to Iran's inflationary economy.Innovation: The current study analyzes the determinants of conservative financial policy, it is the first study that examines the impact of conservative capital structure on the stock price crash risk and the role of life cycle adjustment and Information asymmetry deals with the relationship between capital structure management and stock price crash risk and develops the existing literature regarding financial conservatism and its contradictory effect in inflationary economies.