How is stock price crash risk priced by the stock market? An examination from the perspective of ex-ante cost of equity capital

Huaibing Yu and Jie Deng

International Journal of Managerial Finance, 2026, vol. 22, issue 5, 1072-1100

Abstract: PurposeThis study investigates the pricing of stock price crash risk in firms’ ex ante cost of equity capital.Design/methodology/approachA large sample of firms is constructed, and a multivariate regression model is specified to empirically examine the pricing of stock price crash risk. A battery of follow-up tests is performed to address endogeneity, conduct trichotomy analysis, explore roles of various moderators and check robustness.FindingsThis study finds that firms with higher levels of stock price crash risk tend to have more expensive equity financing, and the positive pricing is more pronounced for firms with lower ratings of corporate social responsibility, lower sustainable competitive advantage and during time periods of economic shocks respectively. Moreover, the trichotomy analysis indicates that a high stock price crash risk would cause a short-run valuation discount with respect to sector multiples and simultaneously diminish a firm’s long-run valuation relative to the book value.Practical implicationsStock price crash risk is a meaningful and priced risk factor in capital markets. It captures deeper vulnerabilities within a firm and directly affects the ability to attract capital, sustain growth and maintain valuation, making it a critical factor in both corporate decision-making and investment evaluation.Originality/valueThis study serves as a leading study to formally examine the pricing of stock price crash risk in firms’ ex ante cost of equity capital. It also reveals the roles of corporate social responsibility, sustainable competitive advantage and economic shocks, which builds the bridge across various streams of literature.

Keywords: Stock price crash risk; Cost of equity capital; Corporate social responsibility; Sustainable competitive advantage; Economic shocks (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-02-2026-0119

DOI: 10.1108/IJMF-02-2026-0119

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