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The Impact of Firm‐Level Illiquidity on Crash Risk and the Role of Media Independence: International Evidence
Author(s) -
An Zhe,
Gao Wenlian,
Li Donghui,
Zhu Feifei
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12162
Subject(s) - endogeneity , crash , independence (probability theory) , stock (firearms) , monetary economics , economics , econometrics , business , demographic economics , financial economics , engineering , statistics , mathematics , mechanical engineering , computer science , programming language
This study investigates the impact of firm‐level illiquidity on stock price crash risk by employing a sample of 21,986 firms across 36 countries spanning the years 1997 to 2007. In doing so, the role of media independence in shaping this impact is also examined. The empirical results suggest that stock illiquidity is significantly and positively associated with firm‐level crash risk. Furthermore, the positive association between illiquidity and crash risk has been mitigated in countries with independent media, characterized by a lower level of state ownership and a higher level of press freedom, in addition to the reduction effect of media independence per se on crash risk. Our main conclusions remain valid after taking into account the endogeneity issues and various robustness tests.