Research on the dynamic interaction effects of litigation events, financing constraints, and the risk of corporate stock price crashes

Xuemei Cheng, Yinglong Zheng and Yongqian Tu

International Review of Economics & Finance, 2025, vol. 99, issue C

Abstract: This study, based on data from Chinese listed companies between 2008 and 2022, explores the dynamic relationship between litigation events and stock price crash risk, while examining the moderating effect of financing constraints. The findings reveal a significant positive correlation between litigation events and stock price crash risk, indicating that litigation events may be a key factor contributing to the risk of stock price declines. Furthermore, the quality of information disclosure plays a mediating role in the relationship between litigation events and stock price crash risk, highlighting the potential importance of information transparency in reducing such risks. The study also finds that financing constraints significantly moderate the relationship between litigation events and stock price crash risk, with this moderating effect exhibiting heterogeneity between firms with standard audit opinions and those without. Further analysis indicates that the moderating effect of financing constraints also varies between profitable and loss-making enterprises.

Keywords: Litigation events; Stock price crash risk; Financing constraints; Quality of information disclosure (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001716

DOI: 10.1016/j.iref.2025.104008

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