Soo Yeon Park, Younghyo Song
Based on the governance role of analysts and bad news hoarding theory of stock crash risk, this study examines the effect of group-affiliated analyst following on subsequent stock price crash risk using non-financial firms listed in the Korea Stock Exchange market, by focusing governance role of analysts as one of the main cause of the crash risk. In particular, we explore if subsequent stock price crash risk is affected when analysts are hired by a securities firm within a business group (chaebol) and the earnings forecast is for an affiliate of that business group. It is meaningful to investigate determinants of the crash risk which has significant influence on going concern and sustainable growth of the firm, specifically in emerging countries such as Korea. The regression results show that group-affiliated analysts help a firm lower its stock price crash risk by utilizing their sufficient source of internal information to effectively monitor managers and discourage them from hiding bad news.