Investment Efficiency and Stock Price Crash Risk: Unveiling Board Governance amidst Informative Asymmetry

AbstractWith the increasing concern regarding distortions related to corporate investments and the fact of stock price collapses, it has become an ultimate interest for finance scholars and practitioners to understand the relationship between firm-level investment decisions and market stability. After the realization of previously concealed information, stock price crash risk exists where negative information holds a level of exposure within information environments. This research examines the connection between investment efficiency and the danger associated with stock price crashes and seeks to investigate information asymmetry as a mediating variable and board governance quality as a moderating variable. The study provides a quantitative study of panel data of non-financial firms classified on the Pakistan stock exchange, across an interval of years, and utilizes mediation and moderation methods through regression analysis to establish that such relationships exist to the degree outlined. The findings reveal that investment efficiency has a negative and significant effect on stock price crash risk, indicating that efficient investment decisions reduce the likelihood of extreme negative stock returns. Information asymmetry negatively affects investment efficiency and mediates the relationship between investment efficiency and crash risk, suggesting that efficient investment reduces crash risk partly through enhancing transparency. Board effectiveness directly reduces information asymmetry and strengthens the negative relationship between investment efficiency and information asymmetry. Leverage shows protective effects against crash risk while constraining investment efficiency, highlighting capital structure trade-offs. The findings contribute to agency theory by demonstrating how investment efficiency, information asymmetry, and board governance interact to influence stock price stability. For practitioners, improving investment efficiency and strengthening board effectiveness can enhance transparency and reduce crash risk. For policymakers, the study underscores the importance of governance reforms that promote board independence and monitoring capability to enhance corporate accountability and financial market stability.