Ranking ESG and Accounting-Based Mechanisms for Preventing Stock Price Crash Risk: A VIKOR Approach

Author(s): Vaibhav Pandey, Tanishq Bhardwaj

Abstract:

Using the Vlsekriterijumska optimizacija i kompromisno resenje (VIKOR) multicriteria decision making method, the authors rank the five selected literature-based alternatives, Environmental, social and governance (ESG) disclosure quality, earnings management reduction, accounting conservatism, audit quality and board independence, according to their effectiveness in lowering the company's stock price crash risk. The reason for the study is that most crash-risk studies examine a single determinant at a time, providing little guidance for firms required to select between multiple mitigation options. Based on the agency theory, information asymmetry theory, signaling theory, and stakeholder theory, the evaluation of each strategy is done from seven perspectives: reduction of information asymmetry, improvement of transparency, prevention of bad-news hoarding, ease of implementation, long-term sustainability, regulatory compatibility, and implementation cost. Using a simulated expert-based decision matrix calibrated to the established literature, the VIKOR results rank ESG disclosure quality first, accounting conservatism second, audit quality third, earnings-management reduction fourth, and board independence fifth. The results indicate that disclosure and accounting-based mechanisms are more effective than governance-based mechanisms when the firms are looking for compromise solutions in multiple constraints. The study provides a concise, practitioner-friendly model integrating ESG, accounting and other governance mechanisms into a ranking model for crash-risk mitigation.

Keywords: Stock Price Crash Risk, Governance Mechanism, Accounting Quality, VIKOR

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