Does corporate innovation strategy influence stock price crash risk? French market evidence

Photo : Does corporate innovation strategy influence stock price crash risk? French market evidence

Innovation is nowadays a primary key success factor and among the most important capacities to maintain competitive advantage in a fast-changing world. In their recent paper, Boubaker, Guizani, and Lakhal examine the effect of firm innovation on stock price crash risk. Using a sample of French publicly-traded firms covering 2007–2016, they find that innovative firms are more likely to experience stock price crashes, suggesting that these firms are plagued with exacerbated information asymmetry and that they conceal bad news to maintain high stock prices as managers exhibit optimistic expectations about the future.

Moreover, their results show that the positive association between innovation and stock price crash risk is more prevalent in highly-competitive markets, which is consistent with the idea that innovative firms increase their financial opacity in the presence of competitive pressure to protect their innovation strategies. This finding alo supports the idea that product market competition is associated with low information quality environments. The relationship between innovation and stock price crash risk is less pronounced when the firm has high financial analyst coverage, suggesting that analysts play a good governance that is likely to hinder the opacity of innovative firms and constrain them to disclose bad news to the market on a regular basis.  

Author(s)
  • Photo :

    Sabri Boubaker Sabri Boubaker is a Professor of Finance. He joined EM Normandie in 2019. He has a PhD from the l'Université Paris-Est, awarded in 2006 and an accreditation to supervise research (HDR) from the same university, awarded in 2010. His research interests are the ownership structure and control of listed companies. Sabri Boubaker has published many academic papers (+80 papers) in international journals. He is co-founder and co-chair of the annual Paris Financial Management Conference (2013) and the Vietnam Symposium in Banking and Finance (VSBF) series (2016). He is also the President of the International Society for the Advancement of Financial Economics (ISAFE).

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