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Government debt and stock price crash risk: International Evidence

Author

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  • Ben-Nasr, Hamdi
  • Boubaker, Sabri

Abstract

We add to the literature on the economic outcomes of government debt and argue that government debt increases crash risk via two channels: (i) hoarding bad news and (ii) tax avoidance. Based on a large international sample, our results indicate that stock crash risk is positively associated with government debt. Our conclusions are robust when we treat endogeneity issues, and our tests confirm the validity of bad news hoarding and tax avoidance as channels through which government debt influences stock price crash risk.

Suggested Citation

  • Ben-Nasr, Hamdi & Boubaker, Sabri, 2024. "Government debt and stock price crash risk: International Evidence," Journal of Financial Stability, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finsta:v:72:y:2024:i:c:s1572308924000305
    DOI: 10.1016/j.jfs.2024.101245
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    More about this item

    Keywords

    Government debt; Fiscal policy uncertainty; Bad news hoarding; Tax avoidance; Crash risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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