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Does trade friction exacerbate stock price crash risk? Evidence from China

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  • Liu, Xiao
  • Zhang, Yabin
  • Wang, Zhenguo
  • Rao, Qiao
  • Yang, Mengmeng

Abstract

Trade frictions can trigger drastic fluctuations in stock price, potentially exacerbating stock price crash risk. However, empirical evidence on whether and how trade frictions impact stock price crash risk is rare, and thus we use Chinese A-share listed firm data to empirically test it. Trade frictions increase stock price crash risk, which remains after robustness checks. Corporate valuation and financial leverage are channels. Moreover, management ownership and analyst coverage mitigate the sensitivity to trade friction-induced crash risks, investor sentiment contributes to resilience against such risks. It sheds light on developing strategies to mitigate crash risk amidst global economic uncertainties.

Suggested Citation

  • Liu, Xiao & Zhang, Yabin & Wang, Zhenguo & Rao, Qiao & Yang, Mengmeng, 2025. "Does trade friction exacerbate stock price crash risk? Evidence from China," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002909
    DOI: 10.1016/j.frl.2025.107026
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    References listed on IDEAS

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    Cited by:

    1. Yong Shi & Tongsheng Yao, 2025. "ESG Rating Divergence: Existence, Driving Factors, and Impact Effects," Sustainability, MDPI, vol. 17(10), pages 1-26, May.

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    Keywords

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    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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