THE IMPACT OF ORGANIZATIONAL CAPITAL ON STOCK PRICE CRASH RISK

Abstract

Financial market volatility and stock price crash risk pose significant challenges for firms, emphasizing the need for effective risk mitigation strategies. This study examines the role of organizational capital a firm's accumulated knowledge, management practices, and internal processes in reducing crash risk using a sample of U.S. firms from 1996 to 2019. Firms with higher organizational capital tend to disclose more information about their capabilities to attract investors, which helps reduce information asymmetry and minimizes the likelihood of concealing negative news. Our findings reveal a strong negative relationship between organizational capital and stock price crash risk, indicating that companies with greater organizational capital demonstrate higher transparency, ultimately contributing to market stability. This effect is particularly pronounced in financially constrained firms and those operating in high-information asymmetry environments. Additional robustness checks, including alternative organizational capital proxies, sensitivity tests, and industry-specific analyses, reinforce the reliability of the results. This study contribute to research on corporate governance, risk management, and financial stability, by providing insights for investors and policymakers to developstrategies to enhance market resilience and mitigate financial instability.