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The provincial border, information costs, and stock price crash risk

Author

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  • Lidan Li
  • Wenbin Long
  • Jun Hu
  • Xianzhong Song

Abstract

Based on externalities in the allocation of interprovincial resources, we examine how geographic location affects firms’ access to resources and thus their information disclosure and stock price crash risk. The results show that border firms have a higher stock price crash risk than non-border firms. Mechanism tests find that border firms have lower available credit, higher financing costs, smaller fiscal subsidies, higher accrual earnings management, lower accounting conservatism, and a more positive tone in the management discussion and analysis section of the annual report. This indicates that resource shortages and aggressive information disclosure are important drivers of their higher stock price crash risk. Additional tests find no border effect in the borders of integrated areas or borders of areas adjacent to municipalities. Accelerating the digital transformation of the government and the information infrastructure construction, and strengthening external governance can partially alleviate the stock price crash risk of border firms.

Suggested Citation

  • Lidan Li & Wenbin Long & Jun Hu & Xianzhong Song, 2022. "The provincial border, information costs, and stock price crash risk," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 10(2), pages 228-250, April.
    • Handle: RePEc:taf:rcjaxx:v:10:y:2022:i:2:p:228-250
    DOI: 10.1080/21697213.2022.2091061
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    Cited by:

    1. Fei Su & Lili Zhai & Jianmei Liu, 2023. "Do MD&A Risk Disclosures Reduce Stock Price Crash Risk? Evidence from China," IJFS, MDPI, vol. 11(4), pages 1-25, December.

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