China's cultural tightness and stock price crash risk
Abstract
Recent social science research indicates that culturally tight environments impose strong constraints on managerial behavior and exhibit low tolerance for deviance. This study documents that such environments incentivize managers to suppress negative information, thereby increasing stock price crash risk in China. Instrumental variable regressions, using the frequency of historical wars as an instrument, confirm a positive effect of cultural tightness on crash risk. Firms relocating their headquarters to tighter (looser) environments experience an increase (decrease) in crash risk compared with firms that remain stationary. Pressures in labor and capital markets amplify the positive effect of cultural tightness on crash risk. Financial reporting opacity serves as a channel through which culturally tight environments affect crash risk. This study advances our understanding of how cultural norms shape managerial behavior, information environments, and capital market dynamics.
Fields of Study & Subjects
Risk Management in Financial Firms
Corporate Finance and Governance
Islamic Finance and Banking Studies
Publication details
- Journal / source
- Pacific-Basin Finance Journal
- Publisher
- Elsevier BV
- Volume
- 100
- Pages
- 103344–103344
- Publication date
- 18 August 2026
- Language
- EN