TY - JOUR
T1 - Cartelization and Expected Crash Risk
T2 - Evidence From Global Leniency Laws
AU - Wang, Dongyue
AU - Kim, Jeong-Bon
AU - Lu, Louise Yi
AU - Yu, Yangxin
PY - 2025/2/1
Y1 - 2025/2/1
N2 - Exploiting the staggered passage of leniency laws in foreign countries to which United States (US) firms are exposed that exogenously renders cartelization less feasible, we show that firms’ expected crash risk significantly increases following the passage of foreign leniency laws. This increase is more evident for firms more likely to engage in collusion, for firms whose managers face greater pressure to conceal poor performance, and when information intermediaries are less effective in assisting investors’ information processing. We further explore the underlying mechanism through which cartelization affects expected crash risk and find that firms with greater exposure to foreign leniency laws exhibit stronger asymmetric responses to bad versus good news disclosures and lower accounting conservatism. Overall, this study shows that cartelization mitigates managers’ bad news hoarding, thus influencing investors’ perceptions of a firm's future crash risk. © 2025 The Author(s). Journal of Business Finance & Accounting published by John Wiley & Sons Ltd.
AB - Exploiting the staggered passage of leniency laws in foreign countries to which United States (US) firms are exposed that exogenously renders cartelization less feasible, we show that firms’ expected crash risk significantly increases following the passage of foreign leniency laws. This increase is more evident for firms more likely to engage in collusion, for firms whose managers face greater pressure to conceal poor performance, and when information intermediaries are less effective in assisting investors’ information processing. We further explore the underlying mechanism through which cartelization affects expected crash risk and find that firms with greater exposure to foreign leniency laws exhibit stronger asymmetric responses to bad versus good news disclosures and lower accounting conservatism. Overall, this study shows that cartelization mitigates managers’ bad news hoarding, thus influencing investors’ perceptions of a firm's future crash risk. © 2025 The Author(s). Journal of Business Finance & Accounting published by John Wiley & Sons Ltd.
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U2 - 10.1111/jbfa.12854
DO - 10.1111/jbfa.12854
M3 - RGC 21 - Publication in refereed journal
SN - 0306-686X
JO - Journal of Business Finance and Accounting
JF - Journal of Business Finance and Accounting
ER -