Does liquidity connectedness affect stock price crash risk? Evidence from China

Xin Yang, Xuan Ao, Jie Cao and Chuangxia Huang

The North American Journal of Economics and Finance, 2024, vol. 74, issue C

Abstract: Using a sample of CSI300 over the 2006–2021 period to establish liquidity spillover networks, we find a significantly negative relationship between liquidity connectedness and stock price crash risk. Further analysis shows that liquidity connectedness depresses stock price crash risk through two potential channels: increased conditional conservatism and decreased stock price synchronicity. Moreover, this effect is more prominent for firms with effective external monitoring, firms with lower risk-taking, and state-owned enterprises (SOEs). Overall, our paper shows that liquidity connectedness is an important factor influencing crash risk and provides useful guidance for corporate management and investor decision-making.

Keywords: Liquidity spillover network; Liquidity connectedness; Stock price crash risk (search for similar items in EconPapers)
JEL-codes: G01 G10 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001633

DOI: 10.1016/j.najef.2024.102238

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