Abstract
Using data from the US, we present empirical evidence for the causal influence of regional social capital on firms’ risk of future stock price crash. Specifically, we show that regional social capital is negatively related to firms’ risk of a future stock price crash. We also identify three potential channels (mediating factors) through which regional social capital can decrease the risk of a future stock price crash—the degree of private corporate news hiding, accounting conservatism, and excessive managerial risk-taking. The findings of our analyses indicate that companies located in high social capital areas tend to have lower degrees of private corporate news hiding or excessive managerial risk-taking, and higher degrees of firm-level accounting conservatism that lead to a lower risk of future stock price crash.
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