Individualistic Cultures and Crash Risk
European Financial Management, Forthcoming
45 Pages Posted: 7 Jan 2016 Last revised: 19 Apr 2018
Date Written: March 2018
This study examines whether individualistic national culture is associated with stock price crash risk (“crash risk”) for a sample of firms from 36 countries over the period of 1990 to 2015. We find robust evidence that firms in more individualistic cultural settings exhibit higher future crash risk. Digging deeper, we find that earnings management, excessive managerial risk-taking, and investors’ difference of opinion and overconfidence are all possible explanations for the positive effect of individualism on crash risk. Overall, our findings suggest that individualism, as a key cultural dimension, has an important impact on investor welfare, manifested through crash risk.
Keywords: National culture; Individualism; Overconfidence; Stock price crash risk
JEL Classification: G12; G15
Suggested Citation: Suggested Citation