The role of investor protection in stock price crash risk: a comparison of developing and developed Asian economies

Abstract

Purpose

This study examines the influence of investor protection on stock price crash risk (SPCR) in Asian economies.

Design/methodology/approach

This study used yearly data from 432 nonfinancial companies publicly listed firms in six countries (i.e., China, India, Pakistan, Hong Kong, Japan and Singapore) from 2007 to 2020 to investigate the relationship between investor protection and the risk of stock price crashes. The hypothesis was tested using a generalized least square panel regression.

Findings

The results suggest that investor protection significantly affects SPCR in Asian economies. Furthermore, the findings show that the stocks of firms whose investors received the best protection were less prone to crash in developed Asian economies. However, in developing Asian economies, the stocks of firms whose investors received the best protection were more prone to crashes.

Practical implications

It provides awareness and understanding of how the level of investor protection affects SPCR, which could be useful for decision-makers and professionals across a spectrum of financial and non-financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This knowledge enables informed decision-making and the formulation of effective policies to manage stock market volatility.

Originality/value

This study appears to be the first of its kind to focus on the link between investor protection and SPCR within the specific context of developed and developing Asian economies.

Citation

Haider, M.J., Ahmad, M. and Wu, Q. (2024), "The role of investor protection in stock price crash risk: a comparison of developing and developed Asian economies", Kybernetes, Vol. 53 No. 12, pp. 5608-5625. https://doi.org/10.1108/K-04-2023-0620