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The impact of corporate culture on stock price crash risk: a firm-level analysis

Author

Listed:
  • Mengjiao Chen
  • Jinjuan Ren
  • Jingying Zhao

Abstract

Purpose - This paper aims to investigate the impact of corporate culture on stock price crash risk and explore the underlying mechanisms. Design/methodology/approach - This paper uses a novel firm-level culture measure of Liet al.(2020), which evaluates corporate culture from the perspectives of integrity, teamwork, innovation, respect and quality. Using a sample of 4,017 US firms from 2001 to 2018, this paper uses panel data regressions to explore the impact of corporate culture on stock price crash risk. Findings - This paper finds that among five cultural dimensions, integrity reduces crash risk and quality increases crash risk. The mitigating effect of integrity culture on crash risk is concentrated among firms with a strong incentive or ability to hoard bad news. The exacerbating effect of quality culture on crash risk is concentrated among firms with low managerial flexibility. Social implications - This paper helps investors and regulators to understand the determinants of stock price crash risk, which facilitates investors’ wealth management and stabilizes social welfare. Originality/value - To the best of the authors’ knowledge, this is the first study that uses time-varying firm-level measure of corporate culture to investigate its impact on stock price crash risk, contributing to the literature on the determinants of crash risk. Besides, this is the first study that explores the possible mechanism of managerial flexibility in influencing stock price crash risk.

Suggested Citation

  • Mengjiao Chen & Jinjuan Ren & Jingying Zhao, 2023. "The impact of corporate culture on stock price crash risk: a firm-level analysis," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 32(1), pages 1-18, November.
    • Handle: RePEc:eme:ijaimp:ijaim-04-2023-0095
    DOI: 10.1108/IJAIM-04-2023-0095
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    More about this item

    Keywords

    Corporate culture; Integrity; Quality; Stock price crash risk; Bad-news hoarding; Managerial flexibility; G12; G32; M14;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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