Stock price crash risk, liquidity and institutional blockholders: evidence from Vietnam

Abstract

Purpose: This study examines the influence of stock liquidity on stock price crash risk and the moderating role of institutional blockholders in Vietnam’s stock market. Design/methodology/approach: Crash risk is measured by the negative coefficient of skewness of firm-specific weekly returns (NCSKEW) and the down-to-up volatility of firm-specific weekly stock returns (DUVOL). Liquidity is measured by adjusted Amihud illiquidity. The two-stage least squares method is used to address endogeneity issues. Findings: Using firm-level data from Vietnam, we find that crash risk increases with stock liquidity. The relationship is stronger in firms owned by institutional blockholders. Moreover, intensive selling by institutional blockholders in the future will positively moderate the relationship between liquidity and crash risk. Practical implications: Since stock liquidity could exacerbate crash risk through institutional blockholder trading, firm managers should avoid bad news accumulation and practice timely information disclosures. Investors should be mindful of the risk associated with liquidity and blockholder trading. Originality/value: We contribute to the literature by showing that the activities of blockholders could partly explain the relationship between liquidity and crash risk. High liquidity encourages blockholders to exit upon receiving private bad news.