Review of the Empirical Literature on Stock Crash Risk: The Role of Managers’ Characteristic, Information Environment and Its Micro-Consequences

Pintong Wang () and Rui Chen
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Pintong Wang: Queen Mary University of London, School of Mathematical Sciences
Rui Chen: University of Southampton, Social Sciences

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 374-381 from Springer

Abstract: Abstract An unexpected, sharp decline in stock prices over a short period of time is known as a stock crash. A significant catastrophic incident or the economic crisis may have a side effect that causes stocks to collapse. This can also be due to widespread public anxiety about a stock fall, which leads to panic selling and additional market declines. The negative skewness of the firm-specific weekly returns is how we estimate crash risk using a large sample of publicly listed companies from 2009 to 2019. The study examined how various firm characteristics, mechanisms for corporate governance, and macroeconomic factors affect crash risk and how crash risk affects future stock returns, earnings quality, and corporate policies. The main findings include: (1) Companies have a higher crash risk due to higher leverage, lower profitability, lower growth opportunities, more intangible assets, more earnings management, more information asymmetry, weaker shareholder rights, and lower institutional ownership. (2) Crash risk is negatively correlated with company value and positively correlated with cost of capital. (3) Crash risk predicts lower future stock returns and operating performance. The consequences of a stock market crash are a topic of great interest among economists, policymakers, investors, and the general public. A stock market crash is characterized by a sudden and significant decline in the value of stocks, often leading to a wide range of economic and financial repercussions. Therefore, we will review the empirical literature on the reasons which caused the stock risk crash and the consequences of stock market crashes, focusing on their impacts on various changes with companies, such as the personal changes within the company and the financial varies within the company.

Keywords: economic crisis; Public panic; stock market crash (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-246-0_45

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