Corporate accessibility, private communications and stock price crash risk

This study examines how private communications is related stock price crash risk in emerging markets where public information environment is weak. To capture the extent and quality of private communications, we construct a corporate accessibility measure for publicly listed firms in China based on their responses to attempted communications with them (telephone, email, and on-line discussion forum), and examine whether corporate accessibility is associated with lower stock price crash risk at the firm-level. We find robust evidence that the distribution of stock returns of accessible firms is less negatively skewed and the stocks have a lower probability of extreme negative firm-specific returns. The results are more pronounced in firms with low analyst coverage, high forecast earnings dispersion, employment of non-Big 4 auditors, and greater earnings management. We also find that, relative to non-accessible firms, accessible firms’ crash risk declines less when short-selling constraints are removed, and accessible firms have lower market synchronicity. Lastly, accessible firms tend to have more corporate site visits made by market participants than is the case for non-accessible firms, and it is more likely for accessible firms that site visits reduce crash risk. Overall, our results suggest that corporate accessibility is a good measure of private communication and it complements public information sources in reducing corporate asymmetry and ultimately stock price crash risk.