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Individualistic cultures and crash risk
Author(s) -
Dang Tung Lam,
Faff Robert,
Luong Hoang,
Nguyen Lily
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12180
Subject(s) - individualism , overconfidence effect , crash , earnings , individualistic culture , hofstede's cultural dimensions theory , uncertainty avoidance , economics , business , social psychology , psychology , collectivism , finance , market economy , computer science , programming language
Abstract This study examines whether individualistic national culture is associated with stock price crash risk (‘crash risk’) for a sample of firms from 36 countries over the period of 1990–2015. We find robust evidence that firms in more individualistic cultural settings exhibit higher future crash risk. Digging deeper, we find that earnings management, excessive managerial risk‐taking, and investors’ difference of opinion and overconfidence are all possible explanations for the positive effect of individualism on crash risk. Overall, our findings suggest that individualism, as a key cultural dimension, has an important impact on investor welfare, manifested through crash risk.