Makrychoriti, Panagiota and Pyrgiotakis, E. (2024) Firm-level political risk and stock price crashes. Journal of Financial Stability 74 (101303), ISSN 1572-3089.
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Abstract
In this study, we examine the relationship between firm-level political risk and stock price crash risk. Using a broad dataset of 4,230 U.S. firms, 38,097 firm-year observations from 2002 to 2019, we reveal a positive association between political risk and stock price crash risk. These findings are robust to several model specifications and endogeneity checks. By using the Brexit referendum as a quasi-natural experiment, we provide evidence of a causal relationship between political risk and crash risk. Through channel analysis, we identify that this relationship is mediated via higher idiosyncratic volatility, lower price informativeness, and higher distress risk. We also find that our results are more pronounced in intangible-intensive firms. Interestingly, we show that managers of these firms respond to political risk by engaging in bad news hoarding. Finally, strong (external or internal) corporate governance mechanisms can moderate the positive relationship between political risk and stock price crash risk.
Metadata
| Item Type: | Article |
|---|---|
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Accounting and Finance Research Centre |
| Depositing User: | Panagiota Makrychoriti |
| Date Deposited: | 20 Jan 2025 15:19 |
| Last Modified: | 19 Mar 2025 10:06 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/54835 |
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