Corporate pledgeable asset ownership and stock price crash risk

Hail Jung, Sanghak Choi, Junyoup Lee () and Sanggeum Woo
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Hail Jung: Ulsan National Institute of Science and Technology, UNIST-Gil 50
Sanghak Choi: Ulsan National Institute of Science and Technology, UNIST-Gil 50
Junyoup Lee: Ulsan National Institute of Science and Technology, UNIST-Gil 50
Sanggeum Woo: Ulsan National Institute of Science and Technology, UNIST-Gil 50

Financial Innovation, 2022, vol. 8, issue 1, 1-28

Abstract: Abstract We investigate how a firm’s corporate pledgeable asset ownership (CPAO) affects the risk of future stock price crashes. Using pledgeable asset ownership and crash risk data for a large sample of U.S. firms, we provide novel empirical evidence that a firm’s risk of a future stock price crash decreases with an increase in its pledgeable assets. Our main findings are valid after conducting various robustness tests. Further channel tests reveal that firms with pledgeable assets increase their collateral value, thereby enhancing corporate transparency and limiting bad news hoarding, resulting in lower stock price crash risk. Overall, the results show that having more pledgeable assets enables easier access to external financing, making it less likely that managers will hoard bad news.

Keywords: Asset pledgeability; Stock price crash risk; Endogeneity tests; Information opacity (search for similar items in EconPapers)
JEL-codes: G30 G33 R30 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1186/s40854-022-00334-9

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