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When stock price crash risk meets fundamentals

Author

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  • Meng, Yongqiang
  • Shen, Dehua
  • Xiong, Xiong

Abstract

We investigate the relationship between fundamental strength and stock price crash risk by analyzing a large sample of Chinese firms. We mainly find that firms with stronger (weaker) total fundamental strength, higher (lower) profitability and higher (lower) operating efficiency have lower (higher) stock price crash risk. Moreover, this negative relationship is more pronounced for firms with a great number of short-term institutional investors and opaque firms. Additional test illustrates that internal control could ameliorate this negative relationship. All these findings are robust to alternative measurements of crash risk and endogeneity correction.

Suggested Citation

  • Meng, Yongqiang & Shen, Dehua & Xiong, Xiong, 2023. "When stock price crash risk meets fundamentals," Research in International Business and Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923001010
    DOI: 10.1016/j.ribaf.2023.101975
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    1. Zhaobo Zhu & Wenjie Ding & Yi Jin & Dehua Shen, 2023. "Dissecting the Idiosyncratic Volatility Puzzle: A Fundamental Analysis Approach," Post-Print hal-04194180, HAL.

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    More about this item

    Keywords

    Fundamental strength; Crash risk; Information asymmetry; Opacity; Internal control; Institutional investor holdings;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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