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IPO over-financing and stock price crash risk: Evidence from China

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  • Wu, Xiang
  • Zhang, Bing
  • Fu, Junhui
  • Liu, Yufang

Abstract

This paper investigates the impact of IPO over-financing on stock price crash risk. Using a unique Chinese database, we find a significant positive relationship between IPO over-financing and crash risk. This finding holds after a series of robustness checks including the inclusion of some omitted variables, longer forecasting windows, and other measure of crash risk. Further analyses show that the impact of IPO over-financing on crash risk is more pronounced in low Tobin’s q firms. Moreover, we find that IPO over-financing affects crash risk through over-investment effect.

Suggested Citation

  • Wu, Xiang & Zhang, Bing & Fu, Junhui & Liu, Yufang, 2022. "IPO over-financing and stock price crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005171
    DOI: 10.1016/j.frl.2021.102555
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    1. Cen, Tao, 2023. "Green finance reform and stock price crash risk: Evidence from Chinese heavily polluting companies," Finance Research Letters, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Stock price crash risk; IPO over-financing; Tobin’s q; Over-investment effect;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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