Thirst for money: External guarantees and stock price crash risk

Kai Wu, Zejun Jin and Maobin Xu

Pacific-Basin Finance Journal, 2022, vol. 72, issue C

Abstract: We evaluate the financial risk and explore the potential motivation behind the pervasive external guarantee activities of listed firms in China from 2008 to 2017. We find that external guarantee intensity is positively associated with stock price crash risk. Further analysis shows that the negative consequences are driven by external guarantee activities with strong information asymmetry. Asymmetric contracts and guarantee relationships produce crash risk. The management hide guarantee risk, whereas analysts reveal crash risk. In addition, external guarantees strengthen bank-firm relationships. Overall, firms are motivated by accessing loans from related banks and by concealing potential risks associated with external guarantees.

Keywords: External guarantees; Information asymmetry; Crash risk (search for similar items in EconPapers)
JEL-codes: G21 G32 H81 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:72:y:2022:i:c:s0927538x22000191

DOI: 10.1016/j.pacfin.2022.101724

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