National Culture and Stock Price Crash Risk

We study how cultural norms along the dimensions of individualism and uncertainty avoidance affect stock price crash risk. Using a sample of 36 countries, we find that firms headquartered in countries with higher levels of individualism (uncertainty avoidance) are associated with higher (lower) stock price crash risk. These findings suggest that individualism encourages managerial bad-news hoarding while uncertainty avoidance curbs such behavior. We also find that these effects are more pronounced in more opaque firms or countries. Overall, our findings suggest that national culture is an important determinant of stock price crash risk.