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Investor Sentiment, Financial Report Quality and Stock Price Crash Risk: Role of Short-Sales Constraints

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  • Yugang Yin
  • Rongfu Tian

Abstract

We use firm-year observations of Chinese firms between 2003 and 2013 and empirically investigate the association between investor sentiment and stock crash risk with respect to short-sales constraint conditions. In addition, we also evaluate the incremental effect of financial reporting quality on this association and the existence of such an association under market conditions. We find that investor sentiment is positively associated with future stock price crash risk and poorer financial report quality and short-sale constraint will strengthen this association. In consideration of the firm-level fundamental information in stock prices and different market states, we find that lower fundamental information in stock price and bull market state will strengthen the positive association between investor sentiment and future stock price crash risk. Our findings are robust with several robustness checks.

Suggested Citation

  • Yugang Yin & Rongfu Tian, 2017. "Investor Sentiment, Financial Report Quality and Stock Price Crash Risk: Role of Short-Sales Constraints," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(3), pages 493-510, March.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:3:p:493-510
    DOI: 10.1080/1540496X.2015.1093844
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    Citations

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    Cited by:

    1. Yang, Mo & Dong, Dayong & Xia, Guoen, 2024. "Risk disclosure and stock price crash risk: Evidence from Chinese listed firms," Finance Research Letters, Elsevier, vol. 60(C).
    2. Fang, Tzu-Yi & Lin, Fengyi & Lin, Sheng-Wei & Huang, Yi-Hua, 2020. "The association between political connection and stock price crash risk: Using financial reporting quality as a moderator," Finance Research Letters, Elsevier, vol. 34(C).
    3. Rao, Lanlan & Zhou, Liyun, 2019. "Crash risk, institutional investors and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. Lin, Xiaowei & Ding, Zijun & Chen, Aihua & Shi, Huaizhi, 2022. "Internal whistleblowing and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 84(C).
    5. Zhou, Jingting & Li, Wanli & Yan, Ziqiao & Lyu, Huaili, 2021. "Controlling shareholder share pledging and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    6. Pan Xu & Jun He & Daojuan Wang & Sofia A. Johan & Siwei Lin, 2024. "Could the simultaneous persistence of greater cash holdings and interest‐bearing debts affect stock price crash risk?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3226-3262, July.
    7. Hao, Jing & Xiong, Xiong, 2021. "Retail investor attention and firms' idiosyncratic risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 74(C).
    8. Fan, Yi & Gao, Yang, 2024. "Short selling, informational efficiency, and extreme stock price adjustment," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1009-1028.
    9. Marian Pompiliu Cristescu & Dumitru Alexandru Mara & Raluca Andreea Nerișanu & Lia Cornelia Culda & Ionela Maniu, 2023. "Analyzing the Impact of Financial News Sentiments on Stock Prices—A Wavelet Correlation," Mathematics, MDPI, vol. 11(23), pages 1-20, November.
    10. Cui, Xin & Sensoy, Ahmet & Nguyen, Duc Khuong & Yao, Shouyu & Wu, Yiyao, 2022. "Positive information shocks, investor behavior and stock price crash risk," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 493-518.
    11. Sanghak Choi & Hail Jung, 2021. "National Tax Service Connection and Stock Price Crash Risk: Evidence from Korea," Annals of Economics and Finance, Society for AEF, vol. 22(1), pages 83-107, May.
    12. Zhenjie Wang & Jiewei Zhang & Hafeez Ullah, 2023. "Exploring the Multidimensional Perspective of Retail Investors’ Attention: The Mediating Influence of Corporate Governance and Information Disclosure on Corporate Environmental Performance in China," Sustainability, MDPI, vol. 15(15), pages 1-33, August.
    13. Narayan, Paresh Kumar & Narayan, Seema, 2021. "Do opinion polls on government preference influence stock returns?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    14. Fu, Junhui & Wu, Xiang & Liu, Yufang & Chen, Rongda, 2021. "Firm-specific investor sentiment and stock price crash risk," Finance Research Letters, Elsevier, vol. 38(C).
    15. Bai, Min & Xu, Limin & Yu, Chia-Feng (Jeffrey) & Zurbruegg, Ralf, 2020. "Superstition and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    16. Tzomakas, Christos & Anastasiou, Dimitrios & Katsafados, Apostolos & Krokida, Styliani Iris, 2023. "Crisis sentiment and banks’ stock price crash risk: A missing piece of the puzzle?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 87(C).

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