Does Exchange-traded Fund Ownership Affect a Firm’s Expected Crash Risk?

Hasibul CHOWDHURY; Beiqi LIN; Shunji  MEI; Kelvin Jui Keng TAN; Lei ZHANG

doi:10.1080/09638180.2024.2368129

Does Exchange-traded Fund Ownership Affect a Firm’s Expected Crash Risk?

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

Overview

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Author(s)

Hasibul CHOWDHURY
Beiqi LIN
Shunji MEI
Kelvin Jui Keng TAN
Lei ZHANG

Related Research Unit(s)

College of Business

Detail(s)

Original language	English
Number of pages	34
Journal / Publication	European Accounting Review
Online published	7 Jul 2024
Publication status	Online published - 7 Jul 2024

Link(s)

DOI	DOI https://doi.org/10.1080/09638180.2024.2368129
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Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-85197676792&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(1ffcc74a-b040-4fb6-b642-28497a310672).html

Abstract

We examine the effect of equity ownership by exchange-traded funds (ETFs) on the expected (ex ante) crash risk of the underlying securities. We observe a positive relationship between ETF ownership and the firm’s expected crash risk. Our findings suggest that ETFs increase information opacity, leading managers to withhold negative news, which in turn amplifies the anticipated crash risk. We demonstrate a positive causal relationship between ETFs and expected crash risk by using the Russell 1000/2000 index reconstitution as an instrument for ETF ownership and ETF initiation as staggered exogenous shocks on ETF ownership. Moreover, this association becomes more noticeable when ETF ownership is broader, the ETF is larger, and the company’s information environment is more opaque. © 2024 European Accounting Association.