Social Capital and Stock Price Crash Risk: Cross-Country Evidence

54 Pages Posted: 30 Nov 2023 Last revised: 10 Sep 2024

See all articles by Chrysovalantis Gaganis

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance

Fotios Pasiouras

GSCM-Montpellier Business School

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School

Date Written: March 7, 2024

Abstract

We use a comprehensive cross-country sample to investigate whether and how the country-level social capital influences the firm-level stock price crash risk. We document a negative and statistically significant effect, which is robust to various tests including IV estimations that account for endogeneity concerns. When we disaggregate social capital into its various components, we find that the results are driven by civic and social participation, institutional trust, and family relationships, whereas social networks and interpersonal trust do not appear to matter. Furthermore, we find that the impact of social capital is channeled through firm-level reporting opacity and price informativeness. Finally, the impact of social capital on stock price crash risk is moderated by formal institutions, like property rights and law and order.

Keywords: Stock price crash risk, Social capital, Informal institutions, Formal institutions

Suggested Citation

Gaganis, Chrysovalantis and Leledakis, George N. and Pasiouras, Fotios and Pyrgiotakis, Emmanouil G., Social Capital and Stock Price Crash Risk: Cross-Country Evidence (March 7, 2024). Available at SSRN: https://ssrn.com/abstract=4633243 or http://dx.doi.org/10.2139/ssrn.4633243

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics ( email )

University Campus
Rethymno, Crete, 74100
Greece

HOME PAGE: http://economics.soc.uoc.gr/en/staff/4551/17

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance ( email )

76 Patission Str.
Athens, 104 34
Greece
+30 210 8203 459 (Phone)
+30 210 8228 816 (Fax)

HOME PAGE: http://www.aueb.gr/en/faculty_page/leledakis-georgios

Fotios Pasiouras (Contact Author)

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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