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Are financially constrained firms susceptible to a stock price crash?

He, G. and Ren, H. M. (2022) 'Are financially constrained firms susceptible to a stock price crash?', The European Journal of Finance .


This study investigates whether and how financial constraints on firms affect the risk of their stock price crashing. We find strong evidence that financial constraints increase future stock price crash risk. This finding is robust to using two quasi-natural experiments to control for potential endogeneity. We also provide evidence to suggest that bad news hoarding and default risk explain the crash risk of financially constrained firms. Cross-sectional analysis reveals that the positive relation between financial constraints and future crash risk is more prominent for firms with weak corporate governance. Our study is of interest to investors as well as other stakeholders concerned about firms’ creditworthiness and viability.

Item Type:Article
Full text:Publisher-imposed embargo
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Available under License - Creative Commons Attribution Non-commercial 4.0.
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Full text:(VoR) Version of Record
Available under License - Creative Commons Attribution Non-commercial No Derivatives 4.0.
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Publisher statement:© 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (, which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
Date accepted:04 May 2022
Date deposited:04 May 2022
Date of first online publication:23 May 2022
Date first made open access:23 May 2022

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