 Labor protection and stock price crash risk: Evidence from international equity marketsWei Chen, Lili Dai, Xiaohua Fang and Wenjun Zhang The British Accounting Review, 2025, vol. 57, issue 3 Abstract: We utilize the exogenous intertemporal variation in employment protection across countries and study the impact of employment protection on international equity markets. We find robust evidence that firms located in countries with weak labor protection regulation exhibit a low level of one-year-ahead stock price crash risks relative to those in countries with strong labor protection regulation. It is consistent with the view that when employees face material unemployment risk, they are more incentivized to engage in information search and analysis, thereby curtailing the effectiveness of managerial bad news hoarding activities (i.e., the protection heightening risk hypothesis). Our findings are robust to a battery of sensitivity tests. Further evidence shows that the impact of employment protection on crash risk is more pronounced for firms with a higher proclivity to suppress bad news and for firms in countries with stronger legal enforcement. Our findings have important implications for policymakers concerning equity extreme risk and labor protection around the globe. Keywords: Labor protection; Crash risk; International evidence (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:57:y:2025:i:3:s0890838923001312 DOI: 10.1016/j.bar.2023.101274 Access Statistics for this article The British Accounting Review is currently edited by Nathan Lael Joseph and Alan Lowe More articles in The British Accounting Review from Elsevier |
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