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Social trust and stock price crash risk: Evidence from China

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  • Cao, Chunfang
  • Xia, Changyuan
  • Chan, Kam C.

Abstract

We study the relation between social trust and stock price crash risk using a sample of Chinese publicly traded A-share stocks during 2001–2012. The crash-prone environment and China's culturally and economically diverse society provide a good background for the examination. We document that (1) social trust and stock price crash risk are negatively correlated and (2) this relation is less pronounced for firms with greater analyst coverage or high institutional ownership. Our findings are robust to alternative measures of crash risk and social trust and additional control variables. Our results also indicate that, as an informal institution, social trust and other formal institutional monitoring mechanisms are partial substitutes. Social trust, as a socioeconomic factor, relates to crash risk.

Suggested Citation

  • Cao, Chunfang & Xia, Changyuan & Chan, Kam C., 2016. "Social trust and stock price crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 148-165.
    • Handle: RePEc:eee:reveco:v:46:y:2016:i:c:p:148-165
    DOI: 10.1016/j.iref.2016.09.003
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    Keywords

    G00; Social trust; Crash risk; China;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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