Financial inclusion and stock price synchronicity: A cross-country study

Using a sample of 142,313 firm-year observations across 38 countries from 2005 to 2022, we document a statistically significant negative association between financial inclusion and stock price synchronicity, consistent with a richer market informational environment. The results are robust to several approaches that mitigate endogeneity concerns and are not driven by developing countries. The relationship is more pronounced for firms with higher trading activity, in line with liquidity’s role in facilitating firm-level price discovery. Conversely, the result is weaker in industries dominated by a few large firms or where earnings strongly co-move. Further, the association is stronger in countries characterized by higher levels of uncertainty avoidance and masculinity, where investors tend to emphasize firm-specific information to reduce ambiguity or to gain informational advantages. In contrast, the relationship is weaker in high power distance cultures and in countries with stronger governance, where institutional mechanisms already promote limited herding and transparency.