Zero-leverage policy and stock price crash risk: Evidence from Korea |
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| Institution: | 1. College of Business Administration, Cheongju University, Cheongju-si, Chungcheongbuk-do, Republic of Korea;2. College of Business & Public Management, Wenzhou-Kean University, Wenzhou, Zhejiang, China;1. Department of Accounting, Economics and Finance, School of Business, Law and Entrepreneurship, Swinburne University of Technology, Melbourne, Australia;2. Department of Accounting, Data Analytics, Economics and Finance, La Trobe University, Melbourne, Australia;3. School of Economics, Finance and Marketing, RMIT University, Melbourne, Australia;1. Department of Banking and Financial Management University of Piraeus;2. Aston Business School Aston University, United Kingdom;1. School of Statistics and Mathematics, Central University of Finance and Economics, Beijing 100081, China;2. School of Finance, Central University of Finance and Economics, Beijing 100081, China |
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| Abstract: | This study examines the difference in stock price crash risk between zero-leverage and non-zero-leverage firms. We find that zero-leverage firms have a significantly higher future stock price crash risk than non-zero-leverage firms. Next, we find that the positive relation between zero-leverage policy and future stock price crash risk is more pronounced when firms have higher controlling shareholders' ownership and foreign ownership. We also find that the positive relation is more pronounced for firms with low cash holdings than for those with high cash holdings. Further, we find that the positive relation is stronger for dividend-paying firms than non-dividend-paying firms. Our results are robust to alternative estimation specifications and endogeneity concerns. Overall, our findings shed light on the extent to which extreme corporate financial policy has an impact on future stock price crash risk. Our empirical evidence also provides meaningful implications for how stakeholders (especially investors) predict stock price crash risk in the context of extremely conservative capital structure. |
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