Do managers have more incentives to hoard bad news during panic? A study of terrorist attacks and stock price crash risk

Abstract

We identify a robust and significant relationship, both statistically and economically, between the rise in a firm's stock price crash risk and the occurrence of terrorist attacks in the vicinity of the firm's headquarters. The empirical findings support the idea that terrorist attacks often trigger increased performance pressures and elevated investor sensitivities, thereby initiating the information manipulation activities of firm managers. Additionally, we examine the heterogeneous effects of corporate governance quality and firm transparency, indicating that firms with superior corporate governance and transparency are less vulnerable to the impact of terrorist attacks. We offer insights into the economic consequences of managerial behavior responses because of the traumatic shock of terrorist attacks.