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The impact of rollover restriction on stock price crash risk

Xiaoxiao Wang and Haiming Liu

Pacific-Basin Finance Journal, 2022, vol. 74, issue C

Abstract: This study investigates the impact of short-term loan rollover restrictions on stock price crash risk using a quasi-natural experiment of China's 2007 regulatory change. Our baseline results show that the rollover restriction reduces stock price crash risk. This effect is more pronounced for firms with higher agency costs or firms with a higher risk of government intervention. Transmission mechanism tests support the idea that rollover restrictions decrease stock price crash risk through information asymmetry and agency cost channels via enhanced monitoring. However, the rollover restriction also leads to a higher liquidity risk, although it does not dominate.

Keywords: Loan rollover; Debt maturity; Stock price crash risk; Information asymmetry; Agency costs (search for similar items in EconPapers)
JEL-codes: G12 G14 G21 G28 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101796

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22000919