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Does liquidity connectedness affect stock price crash risk? Evidence from China

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  • Yang, Xin
  • Ao, Xuan
  • Cao, Jie
  • Huang, Chuangxia

Abstract

Using a sample of CSI300 over the 2006–2021 period to establish liquidity spillover networks, we find a significantly negative relationship between liquidity connectedness and stock price crash risk. Further analysis shows that liquidity connectedness depresses stock price crash risk through two potential channels: increased conditional conservatism and decreased stock price synchronicity. Moreover, this effect is more prominent for firms with effective external monitoring, firms with lower risk-taking, and state-owned enterprises (SOEs). Overall, our paper shows that liquidity connectedness is an important factor influencing crash risk and provides useful guidance for corporate management and investor decision-making.

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  • Yang, Xin & Ao, Xuan & Cao, Jie & Huang, Chuangxia, 2024. "Does liquidity connectedness affect stock price crash risk? Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001633
    DOI: 10.1016/j.najef.2024.102238
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    More about this item

    Keywords

    Liquidity spillover network; Liquidity connectedness; Stock price crash risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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