The Impact of Business Strategies and Managerial Entrenchment on Stock Price Crash Risk in Egypt

الحبشي, هناء عبد القادر; Elhabashy, Hanaa

doi:10.21608/sjsc.2022.171420.1196

The Impact of Business Strategies and Managerial Entrenchment on Stock Price Crash Risk in Egypt

نوع المستند : المقالة الأصلية

المؤلفون

¹ کلية التجارة جامعة المنوفية

² كلية التجارة ، شبين الكوم ، جامعة المنوفية

10.21608/sjsc.2022.171420.1196

المستخلص

This study investigates the impact of a firm's business strategy and managerial entrenchment on stock price crash risk. A sample of 40 non-financial firms from the EGX-100 index was collected during 2017 - 2021 with 200 balanced observations. The study utilized three different measures to calculate the firm-specific crash risk. It also followed a composite strategy score using accounting indicators established by Bentley et al. (2013) as a proxy for business strategy. Exploratory factor analysis was applied to calculate the managerial entrenchment index for six governance mechanisms based on Lin et al. (2014). Panel regression models were then used for data analysis. The results show a significant positive association between business strategy and stock price crash risk. They indicate that firms with prospector strategies are more prone to crash risk than those with defender strategies. The findings also show that firms with a high managerial entrenchment have a lower stock price crash risk. Likewise, the results demonstrate a significant negative influence of average weekly returns on the crash risk indicators. However, the firm size and sales growth rate positively affect crash risk.
To the author's knowledge, none of the existing literature has examined managerial entrenchment's impact on crash risk. Further, no studies have been conducted to examine how various strategies affect crash risk in Egypt or Middle Eastern countries.
The study gives a fundamental perception of crash risk determinants to assist Egyptian investors in decision-making and investing in less risky companies. In addition, the current research results recommend changing the negative perception of managerial entrenchment, which is not always synonymous with inefficiency.

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