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The role of agency theory in stock price crashes during the COVID-19 crisis

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  • Andreou, Panayiotis C.
  • Lambertides, Neophytos
  • Magidou, Marina

Abstract

This study tests the empirical relevance of agency theory in explaining stock price crashes in U.S. firms. We construct two novel multidimensional indices of managerial opportunism using a broad set of agency-related variables linked to bad news hoarding. Using the COVID-19 pandemic as a natural experiment, we examine whether crisis-induced survival pressures intensify the relation between agency problems and the release of previously withheld bad news. Contrary to expectations, we find no significant association between the agency-based indices and future crashes. These findings challenge the traditional agency-based crash risk explanations and underscore the need to explore alternative mechanisms.

Suggested Citation

  • Andreou, Panayiotis C. & Lambertides, Neophytos & Magidou, Marina, 2026. "The role of agency theory in stock price crashes during the COVID-19 crisis," Economics Letters, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:ecolet:v:258:y:2026:i:c:s0165176525005671
    DOI: 10.1016/j.econlet.2025.112730
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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