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Corporate pledgeable asset ownership and stock price crash risk

Author

Listed:
  • Hail Jung

    (Ulsan National Institute of Science and Technology, UNIST-Gil 50)

  • Sanghak Choi

    (Ulsan National Institute of Science and Technology, UNIST-Gil 50)

  • Junyoup Lee

    (Ulsan National Institute of Science and Technology, UNIST-Gil 50)

  • Sanggeum Woo

    (Ulsan National Institute of Science and Technology, UNIST-Gil 50)

Abstract

We investigate how a firm’s corporate pledgeable asset ownership (CPAO) affects the risk of future stock price crashes. Using pledgeable asset ownership and crash risk data for a large sample of U.S. firms, we provide novel empirical evidence that a firm’s risk of a future stock price crash decreases with an increase in its pledgeable assets. Our main findings are valid after conducting various robustness tests. Further channel tests reveal that firms with pledgeable assets increase their collateral value, thereby enhancing corporate transparency and limiting bad news hoarding, resulting in lower stock price crash risk. Overall, the results show that having more pledgeable assets enables easier access to external financing, making it less likely that managers will hoard bad news.

Suggested Citation

  • Hail Jung & Sanghak Choi & Junyoup Lee & Sanggeum Woo, 2022. "Corporate pledgeable asset ownership and stock price crash risk," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-28, December.
    • Handle: RePEc:spr:fininn:v:8:y:2022:i:1:d:10.1186_s40854-022-00334-9
    DOI: 10.1186/s40854-022-00334-9
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    More about this item

    Keywords

    Asset pledgeability; Stock price crash risk; Endogeneity tests; Information opacity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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