Are financially constrained firms susceptible to a stock price crash?

He, Guanming and Ren, Helen Mengbing ORCID: 0000-0001-6721-6269 (2023) Are financially constrained firms susceptible to a stock price crash? EUROPEAN JOURNAL OF FINANCE, 29 (6). pp. 612-637.

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Abstract

This study investigates whether and how financial constraints on firms affect the risk of their stock price crashing. We find strong evidence that financial constraints increase future stock price crash risk. This finding is robust to using two quasi-natural experiments to control for potential endogeneity. We also provide evidence to suggest that bad news hoarding and default risk explain the crash risk of financially constrained firms. Cross-sectional analysis reveals that the positive relation between financial constraints and future crash risk is more prominent for firms with weak corporate governance. Our study is of interest to investors as well as other stakeholders concerned about firms’ creditworthiness and viability.

Item Type:	Article
Additional Information:	Source info: WBS Finance Group Research Paper No. 239
Uncontrolled Keywords:	Financial constraints, crash risk, bad news hoarding, default risk, corporate governance
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	05 May 2022 08:30
Last Modified:	28 Jun 2023 13:34
DOI:	10.1080/1351847X.2022.2075280
Open Access URL:	https://doi.org/10.1080/1351847X.2022.2075280
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3154288