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Corporate Derivatives Usage, Information Environment, and Stock Price Crash Risk

Author

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  • Jeong-Bon Kim
  • Yi Si
  • Chongwu Xia
  • Lei Zhang

Abstract

This study investigates the effect of corporate derivatives usage on stock price crash risk. We test two competing hypotheses. Under the transparency hypothesis, derivatives usage reduces information opacity and lowers crash risk. Under the speculation hypothesis, derivatives usage exacerbates managerial short-termism and increases crash risk. We find evidence supporting the transparency hypothesis. This result is robust to sensitivity checks including a two-stage treatment model, difference-in-differences test, and subsample analysis. We further show that curbing bad news hoarding, curtailing overinvestment, and increasing breadth of ownership are potential channels through which derivatives usage mitigates crash risk. Additional tests on the effect of derivatives usage on likelihood of securities class-action litigation provide consistent results.

Suggested Citation

  • Jeong-Bon Kim & Yi Si & Chongwu Xia & Lei Zhang, 2022. "Corporate Derivatives Usage, Information Environment, and Stock Price Crash Risk," European Accounting Review, Taylor & Francis Journals, vol. 31(5), pages 1263-1297, October.
    • Handle: RePEc:taf:euract:v:31:y:2022:i:5:p:1263-1297
    DOI: 10.1080/09638180.2021.1918564
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    Citations

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    Cited by:

    1. Fu, Senliulu & Su, Kun & Zhang, Miaomiao, 2026. "The nonlinear linkage between corporate financialization and total factor productivity: Evidence from China," Research in International Business and Finance, Elsevier, vol. 83(C).
    2. Chaudhry, Neeru & Gupta, Aastha, 2024. "Impact of using derivatives on stock market liquidity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 97(C).
    3. Zhang, WenXue & Tian, Yuhao & Zhu, Zeyu, 2025. "Corporate excess cash, economic policy uncertainty and stock price crash risk," Finance Research Letters, Elsevier, vol. 81(C).
    4. Guo, Huimin & Pan, Zheyao & Tian, Gary, 2024. "Shareholders' political hierarchy and regulatory enforcement: Evidence from corporate risk management," The British Accounting Review, Elsevier, vol. 56(6).
    5. Eugster, Nicolas & Wang, Qingxia, 2023. "Large blockholders and stock price crash risk: An international study," Global Finance Journal, Elsevier, vol. 55(C).
    6. Gu, Zhenjiang & Lu, Louise Yi & Yu, Yangxin, 2024. "CEO equity incentive duration and expected crash risk," The British Accounting Review, Elsevier, vol. 56(6).
    7. Xiaoran Ni & Yi Si & Bohui Zhang, 2026. "Climate vulnerability and stock price crash risk worldwide," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 57(2), pages 257-280, March.
    8. Kangqi Jiang & Xiaofeng Chen & Jiayun Li & Mengling Zhou, 2025. "Technology adoption and extreme stock risk: Evidence from digital tax reform in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-20, December.
    9. 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.
    10. Rahman, Sohanur & Sinnewe, Elisabeth & Chapple, Larelle, 2024. "Environment-specific political risk discourse and expected crash risk: The role of political activism," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    11. Qiankun Gu & Jeong‐Bon Kim & Ke Liao & Yi Si, 2023. "Decentralising for local information? Evidence from state‐owned listed firms in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 5245-5276, December.
    12. Praveen Gupta & Sushanta Mallick & Deven Bathia, 2025. "Does derivative usage boost firm value in an economy with controls? Evidence from India," Review of Quantitative Finance and Accounting, Springer, vol. 65(1), pages 295-344, July.
    13. Niu, Yan & Du, Dan, 2025. "Comparability of accounting information, financialization level, and corporate stock price crash risk," Finance Research Letters, Elsevier, vol. 85(PE).

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