FIRM CHARACTERISTICS, MARKET STABILITY, AND THE DYNAMICS OF STOCK PRICE CRASHES: EVIDENCE FROM FIRM-LEVEL DATA IN EMERGING MARKETS

The paper examines the risk of stock price crashes in emerging markets based on structural and governance features of companies. The analysis based on a balanced sample of 2010-2023 firms, as well as random-effects generalized least squares (GLS) regression, examines how leverage, firm size, firm age, and board size are associated with the probability of a crash event occurring. The findings indicate that the size of firms has a significant impact on the crash risk as the greater the size the less vulnerable it is, and the larger the board size the greater is the monitoring role of corporate governance mechanisms. The age of the firm is partly affected, as both reputational capital and structural rigidity are present, and leverage is statistically insignificant in explaining the risk of crashing. The robustness of the findings is supported by sensitivity tests of the fixed-effects, random-effects, and robust OLS models and the post-estimation diagnostic shows that there is no multicollinearity, autocorrelation, and heteroskedasticity. The results show that governance-based regulatory changes and transparency at the firm level play a significant role in reducing stock price crashes, hence, playing a crucial role in ensuring financial stability in the emerging markets.