Can Better Corporate Governance and Ownership Structure Reduce the Chances of Stock Price Crash Risk? Evidence from Pakistan Stock Exchange

Abstract

The purpose of this study is to determine whether corporate governance and the risk of a stock price crash are related. A significant amount of research indicates that managers' propensity to conceal negative information from investors because of employment agreements and professional obligations is a significant contributor to the risk of a stock market crash. The purpose of this research is to confirm if effective governance frameworks aid in limiting these self-serving managerial practices. This study uses a regression model with 1300 data points from PSX-listed firms between 2010 and 2022 to test the hypothesis. This study offers concrete proof of the connection between governance attributes and stock crash risk. The results indicate that board structure may have an effect on lowering the risk of a stock price crash if independent directors and gender diversity are present. Additionally, ownership structure helps reduce crash risk. By expanding on previous research on corporate governance, this paper makes a contribution.