Does trade friction exacerbate stock price crash risk? Evidence from China

Xiao Liu, Yabin Zhang, Zhenguo Wang, Qiao Rao and Mengmeng Yang

Finance Research Letters, 2025, vol. 77, issue C

Abstract: Trade frictions can trigger drastic fluctuations in stock price, potentially exacerbating stock price crash risk. However, empirical evidence on whether and how trade frictions impact stock price crash risk is rare, and thus we use Chinese A-share listed firm data to empirically test it. Trade frictions increase stock price crash risk, which remains after robustness checks. Corporate valuation and financial leverage are channels. Moreover, management ownership and analyst coverage mitigate the sensitivity to trade friction-induced crash risks, investor sentiment contributes to resilience against such risks. It sheds light on developing strategies to mitigate crash risk amidst global economic uncertainties.

Keywords: Trade friction; Stock price crash risk; Corporate valuation; Financial leverage; Management ownership; Analyst coverage; Investor sentiment (search for similar items in EconPapers)
JEL-codes: F51 G14 G33 (search for similar items in EconPapers)
Date: 2025
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002909

DOI: 10.1016/j.frl.2025.107026

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