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The Impact of Political Risks on Financial Markets: Evidence from a Stock Price Crash Perspective

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Listed:
  • Yanping Ma

    (International College for Interdisciplinary Studies, Payap University, Chiang Mai 50000, Thailand)

  • Qian Wei

    (School of International Economics and Trade, Guangxi University of Foreign Languages, Nanning 530222, China)

  • Xiang Gao

    (Research Center of Finance, Shanghai Business School, Shanghai 200235, China)

Abstract

Political risk, one of the most significant uncertainty shocks, affects firms’ future attitudes toward risks and plays a crucial role in their decision making. A stock price crash risk is a classical topic in financial markets; therefore, this paper probes the relationship between firm-level political risk and stock price crash risk based on a sample of Chinese listed firms from 2011 to 2020. This paper collects the MD&A textual material of Chinese listed firms and calculates the firm-level political risk of Chinese listed firms. Our results show that a firm’s stock price crash risk is positively associated with its firm-level political risk exposure. Our findings hold after conducting various robustness tests, including instrument variable regression and altering the measurement of stock price crash risk. Further discussion reveals that political involvement mitigates the positive effect of firm-level political risk on the risk of a stock price jump.

Suggested Citation

  • Yanping Ma & Qian Wei & Xiang Gao, 2024. "The Impact of Political Risks on Financial Markets: Evidence from a Stock Price Crash Perspective," IJFS, MDPI, vol. 12(2), pages 1-16, May.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:2:p:51-:d:1403147
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    References listed on IDEAS

    as
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