Stock Price Crash Research Articles

Corporate fraud, political connections, and media bias: Evidence from China

AbstractThis article empirically examines how political connections (PCs) affect a firm's media reaction after corporate fraud. Using data for Chinese listed companies from 2008 to 2021, we find that the media reports more positively for firms with PCs than for others that do not possess such advantages after the enforcement against fraud. The results are robust to a series of robustness checks and endogeneity corrections. When decomposing media reports, we find that PCs only facilitate positive media coverage but do not impede negative media coverage, which is more pronounced in state‐controlled media. This suggests that PCs protect firms’ branding by facilitating positive media reports rather than withholding bad news. Moreover, we find this protective effect is more pronounced in firms with stronger PCs, weaker anti‐corruption regulation, lighter punishment for fraud, private ownership, and more donations. Further, the consequences analysis shows that this kind of protective effect significantly increases the probability of future fraud and stock price crashes. Our findings present a new perspective on the role of PCs and provide evidence for political bias in media coverage.

Stock price crash risk and cost of debt

This paper takes corporate bonds issued by Chinese A-share listed companies from 2011 to 2021 as a sample to study the relationship and the mechanism of the relationship between stock price crash risk and debt financing cost. It is found that an increase in the risk of stock price crash will significantly increase the credit spread and issue size of corporate bond issuance; an increase in the risk of stock price crash does not have a significant effect on the expected probability of default and Z-value.

The Effect of Firm-Specific Environmental Punishment on Stock Price Crash Risk: Evidence From China

Even though previous studies have investigated the effect of environmental regulation policy on stock price crash risk, little is known about how the firm-specific environmental punishment would impact stock price crash risks. By applying difference-in-difference method with manually collected firm-specific environmental punishment data for the listed firms in China, our study finds that the implemented environmental punishment leads to larger stock price crash risk accumulation of the punished firms. This effect can be mitigated by better information disclosure behavior, higher media reputation, healthy fundamentals, and optimal capital structure. Our study also finds the consecutive punishment effect only exists in a long period. Our work is among the first to rigorously analyze the effect of firm-specific environmental punishment on firm’s stock price crash risk. This research provides relevant policy suggestions on the environmental punishment practice.

ESG performance after the stock price crash and the role of foreign investors

This research explored ESG rating changes after stock price crashes and the impact of foreign investor ownership and investment horizons. Using regression analysis and data from Korean listed firms from 2012 to 2020, we observed an improvement in ESG ratings following stock price crashes. However, higher foreign ownership did not necessarily lead to higher ESG ratings in crashed firms, except for those with long-horizon foreign ownership. The results were consistent when considering crash causes and robust in sensitivity analyses. The research sheds light on factors influencing ESG ratings and emphasizes the significance of stock price crashes and foreign investor ownership in promoting corporate sustainability.

The role of investor protection in stock price crash risk: a comparison of developing and developed Asian economies

PurposeThis study examines the influence of investor protection on stock price crash risk (SPCR) in Asian economies.Design/methodology/approachThis study used yearly data from 432 nonfinancial companies publicly listed firms in six countries (i.e., China, India, Pakistan, Hong Kong, Japan and Singapore) from 2007 to 2020 to investigate the relationship between investor protection and the risk of stock price crashes. The hypothesis was tested using a generalized least square panel regression.FindingsThe results suggest that investor protection significantly affects SPCR in Asian economies. Furthermore, the findings show that the stocks of firms whose investors received the best protection were less prone to crash in developed Asian economies. However, in developing Asian economies, the stocks of firms whose investors received the best protection were more prone to crashes.Practical implicationsIt provides awareness and understanding of how the level of investor protection affects SPCR, which could be useful for decision-makers and professionals across a spectrum of financial and non-financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This knowledge enables informed decision-making and the formulation of effective policies to manage stock market volatility.Originality/valueThis study appears to be the first of its kind to focus on the link between investor protection and SPCR within the specific context of developed and developing Asian economies.

Investigating The Role of Accounting Information Comparability in Mitigating Stock Price Crash Risk: Evidence from China’s Knowledge-Based Economy

Investigating The Role of Accounting Information Comparability in Mitigating Stock Price Crash Risk: Evidence from China’s Knowledge-Based Economy

The informal hierarchy of board and stock price crash risk

We examine the impact of the clarity of the informal board hierarchy on a firm's stock price crash risk. By analyzing data from Chinese A-shares between 2010 and 2021, we find that: First, there is a positive relationship between the clarity of the informal board hierarchy and stock price crash risk, suggesting that when the board hierarchy is less transparent, it contributes to a higher likelihood of stock price crashes. Second, the above effect is moderated by the level of independence of the supervisory board. When the supervisory board possesses greater autonomy in decision-making, it helps mitigate the above effect.

Digital transformation and risk of share price crash: Evidence from a new digital transformation index

Digital transformation has become a key initiative for firms’ sustainable development. Based on the annual reports of A-share listed companies, we use LDA model to construct a novel measure of firm digital transformation and examine its effect on the risk of stock price crash. We find that firm digital transformation significantly affects the risk of stock price crash. We then show that information asymmetry and firm performance are underlying mechanisms. Further, heterogeneity analyses show that the ownership and the degree of technology moderate our findings. This paper provides policy implications on the development of digital economy and capital markets.

Risk analysis of China's financial market collapse based on cloud computing and machine learning algorithms

AbstractIn recent years, with the rapid advancement of hardware and software algorithms, information technology has penetrated every aspect of our lives, creating waves of digital transformation in enterprises represented by four underlying technologies, namely: ‘artificial intelligence, big data, cloud computing, and blockchain’. As a result, digital technology has emerged as the primary force behind industrial transformation and upgrading, as well as high‐quality development. Using the data of Shanghai and Shenzhen A‐share listed companies from 2007 to 2020, this paper empirically examines the impact of the digital transformation of listed companies on their stock price crash risk and its mechanism using a two‐way fixed effect model with time and individual effects. It can be seen from the research results that, overall, enterprise digital transformation can significantly reduce the risk of a stock price crash. Further analysis reveals that this risk‐inhibiting effect is more apparent for private enterprises and small and medium‐sized enterprises. In terms of impact mechanism, digital transformation can reduce the risk of a stock price crash by improving the quality of enterprise information internally, while the more analysts pay attention to an issue, the more obvious the role of digital transformation in reducing the risk of a stock price crash for enterprises externally. However, it is worth noting that if the stock price of an enterprise crashes, blindly implementing digital transformation may increase the crash risk. The paper illustrates the practical importance of digital technology from the perspective of enterprises in stabilizing the crash risk of stock prices and improving the performance of the capital market. Meanwhile, it contributes to theoretical research on the impact of digital transformation on microeconomic entities and provides practical knowledge and evidence for enterprises to accelerate digital transformation.

Media Tone and Stock Price Crash Risk: Evidence from China

Following the 2008 financial crisis, multiple studies have contributed to the research on stock price crashes. However, most of the studies on stock price crashes are from the corporate management perspective, focusing on factors such as the board’s character, the CEO’s power, the brand’s capital, and ESG performance. Few studies have taken external information, such as media coverage, into consideration. Meanwhile, in the era of 5G, internet media has witnessed exponential growth, heavily enhancing the speed of information transmission; this could possibly impact the future risk associated with stock price crashes. From this perspective, our study extends the coverage by investigating the relationship between internet media coverage and the potential risk of stock price crashes. Using a comprehensive dataset of the Chinese stock market from 2008 to 2021, we found that the optimistic (pessimistic) tones of internet media were positively (negatively) correlated with the future risk of crashes. These findings remained firm after accounting for winsorization, corporate governance control, firm fixed effects, and instrumental variable analysis. Further analyses showed that media tone impacts were more pronounced for firms with higher analyst coverage. Our study indicates that investors, especially retail investors, who are more easily influenced by internet media, should be more cautious about the increasingly favorable internet coverage of listed companies, which could result in a heightened future risk of stock price crashes. Moreover, regulators should inform investors when listed companies are experiencing more favorable internet coverage to minimize potential stock market fluctuations and investment losses for investors.

Media Coverage, Investor Protection and Stock Price Crash Risk

Media Coverage, Investor Protection and Stock Price Crash Risk

Extremal quantiles and stock price crashes

We employ extreme value theory to identify stock price crashes, featuring low-probability events that produce large, idiosyncratic negative outliers in the conditional distribution. Traditional methods employ approximations under Gaussian assumptions and central moments. This is inherently imprecise and susceptible to misspecifications, especially for tail events. We instead propose new definitions and measures for crash risk based on conditional extremal quantiles (CEQ) of idiosyncratic stock returns. CEQ provide information on quantile-specific impact of covariates, and shed light on prior empirical puzzles and shortcomings in identifying crashes. Additionally, to capture the magnitude of crashes, we provide an expected shortfall analysis of the losses due to crash. Our findings have important implications for a burgeoning literature in financial economics that relies on traditional approximations.

Can Female Directors and Commissioners Reduce Stock Price Crash Risk: Evidence from LQ45 Indexed Company

This study empirically examines female directors and female commissioner’s affects stock price crash risk. This research was conducted on companies listed on the IDX's LQ-45 index in 2019-2021 by applying the fixed effect model (FEM) on GLS regression model. We prove that female board of directors and board of commissioners can reduce the stock price crash risk of the company by using several six control variables, those are return on asset (ROA), Leverage, Market to Book Value Ratio, RET, Sigma, and Size. The female directors and commissioners in this study are represented numerically with the results according to the assumption that the significance in the economic field, especially the risk of falling stock prices in companies, is a company that has a board of directors and a board of commissioners of women in its positions.

The influence of lazy information disclosure on stock price crash risk: Empirical evidence from China.

Information disclosure is an important way for investors to obtain information, the annual report text carries a lot of information, lazy information disclosure is an important form of information disclosure of the annual report text. This paper takes China's A-share listed companies from 2011 to 2022 as the research sample, takes the annual report text information disclosure form as the entry point, uses the computer text analysis technology to measure the text similarity of the annual report to measure the lazy information disclosure, and explores its impact on stock price crash risk. The results show that there is a positive correlation between the similarity of annual report text and the risk of stock price crash, that is, when the information of annual report text is presented in the form of lazy information disclosure, the risk of stock price crash increases. For companies audited by key auditing institutions, the positive correlation between the similarity of their annual reports and the risk of stock price crash is not significant, indicating that key auditing institutions will weaken the positive correlation between lazy information disclosure and the risk of stock price crash. Further, through external attention and analysis of the time delay of annual report disclosure, it is concluded that the management lacks the opportunity and time to hide the bad news, so it is clear that the lazy information disclosure comes from the business situation "the fact is so". The research conclusion of this paper provides evidence support for the influence of lazy information disclosure on stock price crash risk, and also provides useful reference for regulators to improve information disclosure policies and effectively prevents and resolves stock price crash risk.

Female CFO and Stock Price Crash Risk: Evidence from Indonesia

Stock price crash risk in a company can be caused by corporate governance. Most studies report the main factor of the stock price crash risk is the tendency of management to hold bad news from investors or the public. This study aims to analyze whether the gender differences in the CFO factor, gender diversity, and also the number of boards of directors contribute to information transparency. The method used in this research is the Fixed Effects Model to reduce the problem of endogeneity. The research used a sample of listed companies in Indonesia on the Indonesia Stock Exchange's mains board during the 2019-2021 period. The results showed that the gender of the CFO and the number on the board of directors has a positive impact on the stock price crash risk. While the variable of gender diversity showed a negative impact on the dependent variable.

Audit committee accounting financial expertise and stock price crash risk

This paper examines whether the accounting financial experts (hereafter, AFEs) among audit committee (hereafter, AC) members and the AFEs' specific types of expertise affect future firm-specific stock price crash risk. Using a Korean sample of 2142 firm-year observations, we classify AFEs into four specific types: AC members with auditing, academic, practical, or supervisory expertise. We find that AC accounting financial expertise in general, and AFE with auditing and supervisory expertise in particular, are likely to reduce firm-specific crash risk. In addition, we provide evidence that the interaction between AC members with different types of expertise has a significant effect on the stock price crash risk by utilizing synergies between them. Furthermore, our findings are more pronounced for firms with higher financial reporting opacity, higher information asymmetry, and the presence of accounting financial expertise in the AC chair position, and are robust to alternative research designs. Overall, our results highlight the roles of different types of AC accounting financial expertise in preventing crashes in stock price.

Effects of green credit policy on the risk of stock price crash

Green credit policy (GCP) is a specific instrument for the credit resource allocation dimension in the financial sector, and stock price crashes are an important manifestation of financial market risks that cannot be ignored. However, there are gaps in existing research on how green credit policies affect the stock price crash risk (SPCR). Using the Green Credit Guidelines as a quasi-natural experiment, this paper examines the impact of green credit policies on SPCR of heavily polluting firms. It confirms the crash risk is significantly increased for heavily polluting enterprises, mainly due to facing greater financing pressure; and that corporate governance mechanisms reduce its impact, finding that firms with higher analyst attention, higher levels of independent directors, and higher shares held by institutional investors. The effect between GCP and SPCR is not significant for companies with higher analyst attention, higher levels of independent directors, and higher shareholdings of institutional investors. At the same time, it is less significant in regions with high level of financial development. These results of this paper not only enrich the literature in green credit-related fields, but also provide a reference value for understanding the implementation effect of GCP in China to the stock price crash in the capital market.

The Effect of Audit quality on Stock Price Crash Risk "An Empirical Study on Egyptian Listed Companies"

The Effect of Audit quality on Stock Price Crash Risk "An Empirical Study on Egyptian Listed Companies"

The Effect of Adopting International Financial Reporting Standards (IFRS) on Stock Price Crash Risk "An Empirical Study on Egyptian Listed Companies"

The Effect of Adopting International Financial Reporting Standards (IFRS) on Stock Price Crash Risk "An Empirical Study on Egyptian Listed Companies"

Impact of Brand Capital on the Stock Price Crash Risk, an Empirical Study

The factors influencing the financial market are rapidly becoming more complex. The impact of non-financial factors on the performance of a company’s common stock can increase in ways that were not previously expected. This study investigated how brand capital affects the risk of stock prices in Iraqi private banks listed on the Iraq Stock Exchange failing by identifying the likelihood of a crash caused by a negative deviation in the distribution of returns on ordinary shares. As a result, the current study’s concept is to review an analytical knowledge framework of the nature of that relationship, its changes, and its impact on the pricing of ordinary shares of the banks of the researched sector for the years 2009 to 2017, as well as by the 21 banks listed during that time and by the 588 observations using the expanded market model to determine quarterly changes in stock prices. In addition to testing the negative coefficient of skewness and the down-to-up volatility models to test the contribution of brand capital in reducing the risk of stock collapse, The test results showed that brand capital is closely related to the significant and adverse risks of a stock crash. Additionally, the first’s impact is inverse, as its content highlights the role that the research sample banks’ brand capital played in lowering the dangers of stock price crashes.