Information Ratings Disclosure and Stock Price Crash Risk

This research examine the effects of information disclosure ratings on firm-specific stock price crash risk. We present evidence that there is a statistically significant negative relationship between stock price crash risk and information disclosure ratings. Our evidence further shows that the effect of risk reduction is transmitted through the market reactions (i.e., investor attention and liquidity) as intermediary channels, and investor attention is the main reaction. Specifically, firms with higher information disclosure ratings attract more investor attention and have greater stock liquidity, leading to lower stock price crash risk. Our findings are shown to be robust after controlling for certain variables and addressing endogeneity. In general, companies with high information disclosure ratings have shown more company information. Our evidence suggests that such companies face a lower risk of a stock price crash, and their investors are also exposed to lower sharp firm-specific downside risk. These results indicate that enterprises with good information disclosure have improved internal corporate transparency in the face of stock price crashes, helping correct investors’ decision-making problems and external investors’ attention and liquidity provide external supervision and thus better investor protection