The benefit of being a local leader: Evidence from firm-specific stock price crash risk

Limin Xu, Chia-Feng (Jeffrey) Yu () and Ralf Zurbruegg

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: This paper investigates whether being a local leader affects a firm's stock price crash risk. We find that local leadership, in terms of being a relatively large firm in a surrounding locality, decreases a firm's stock price crash risk. The results are robust to both an instrumental variable and a difference-in-differences regression approach. We also document that the impact on crash risk depends on the extent to which local communities are likely to be monitoring local firms through their stock market participation rates, the information environment surrounding these firms, and the level of industry competition. Overall, our results highlight a novel benefit of being a local leader, as it is associated with a higher level of local monitoring which renders the firm less prone to crash risk.

Keywords: Local bias; Local monitoring; Local leader; Firm-specific stock price crash risk; Earnings management (search for similar items in EconPapers)
JEL-codes: G32 G41 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920301966

DOI: 10.1016/j.jcorpfin.2020.101752

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