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Research on the dynamic interaction effects of litigation events, financing constraints, and the risk of corporate stock price crashes

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  • Cheng, Xuemei
  • Zheng, Yinglong
  • Tu, Yongqian

Abstract

This study, based on data from Chinese listed companies between 2008 and 2022, explores the dynamic relationship between litigation events and stock price crash risk, while examining the moderating effect of financing constraints. The findings reveal a significant positive correlation between litigation events and stock price crash risk, indicating that litigation events may be a key factor contributing to the risk of stock price declines. Furthermore, the quality of information disclosure plays a mediating role in the relationship between litigation events and stock price crash risk, highlighting the potential importance of information transparency in reducing such risks. The study also finds that financing constraints significantly moderate the relationship between litigation events and stock price crash risk, with this moderating effect exhibiting heterogeneity between firms with standard audit opinions and those without. Further analysis indicates that the moderating effect of financing constraints also varies between profitable and loss-making enterprises.

Suggested Citation

  • Cheng, Xuemei & Zheng, Yinglong & Tu, Yongqian, 2025. "Research on the dynamic interaction effects of litigation events, financing constraints, and the risk of corporate stock price crashes," International Review of Economics & Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001716
    DOI: 10.1016/j.iref.2025.104008
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    References listed on IDEAS

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    1. Willa Li & Yuki Gong & Yuge Zhang & Frank Li, 2025. "Derivative Complexity and the Stock Price Crash Risk: Evidence from China," IJFS, MDPI, vol. 13(2), pages 1-29, June.

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