Abstract

Purpose: Accounting fraud is a serious misconduct that harms the confidence of investors in the capital market and is one of the controversial topics in the financial field. Many researches have examined the effect of fraud on the capital market from different aspects, but it is still not clear whether the disclosure of frauds committed by companies in the past affects the risk of future stock price crash. Therefore, the purpose of this research is to investigate the relationship between the detection of fraud in financial statements by market participants and the risk of crashing future stock prices.
Method: In order to achieve the goal of the research, 143 companies were selected among the companies admitted to the Tehran Stock Exchange during the years 1392 to 1400 by systematic elimination method and a total of 1287 company-years were considered.
Results: The findings of the research show that fraud in the financial statements of companies and its detection by market participants has a positive and significant effect on the risk of crashing stock prices.
Conclusion: The findings of this research show that following the disclosure of accounting frauds and the accumulation of bad news by the company and the deterioration of the quality of the disclosure and the vagueness of the information environment of the company, the trust of the investors has been lost and in turn lead to It is the risk of crashing stock prices. This supports our theoretical mechanism that accounting fraud affects stock price crash risk through information opacity.
Contribution: This research can help investors to investigate the information environment of companies more deeply and understand the power of information environment of companies in their financial decisions.