Stock Price Crash Risk, Managerial Ownership, and Cost of Debt

Florence Depoers, Assil Guizani and Faten Lakhal

Finance, 2023, vol. 44, issue 2, 37-68

Abstract: The purpose of this paper is to investigate the effect of stock price crash risk on the cost of debt for French listed companies. We use a sample of 221 companies from 2008 to 2017 and find that stock price crashes increase the cost of debt, suggesting that creditors consider a firm-level stock price crash to be an important risk factor when issuing loans. This positive effect is more pronounced in firms with high systematic risk and information asymmetry issues. We also show that the positive effect of stock price crash risk on the cost of debt is less prevalent when the manager or the founding family is the first large shareholder of the company. These findings support the hypothesis of alignment of interests between managers and creditors and are in line with the perspective of the social networks, owner-managers and families have with their banks.

Keywords: Stock price crash risk; Cost of debt; Managerial ownership; Family ownership Information asymmetry; Firm risk (search for similar items in EconPapers)
Date: 2023
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