Press freedom and stock price crash risk

We examine the impact of press freedom, a crucial institutional factor against bad news hoarding, on stock price crash risk. Using a sample of more than 18,000 firms across 52 economies from 2002 to 2021, we find that firms in economies with higher degrees of press freedom are associated with a lower stock price crash risk. Further analysis shows that press freedom deters bad news hoarding by increasing the intensity of reporting, lengthening the reporting period, and broadening local media coverage. Our results also suggest that the high firm-specific and long-run overvaluations resulting from bad news hoarding is a channel through which press restriction leads to the crash risk. Our cross-sectional analyses show that the negative effect is less pronounced in economies with higher levels of corruption and for firms with higher ESG risk, and more evident for industries with greater short interest. Our results survive a battery of robustness checks. In sum, our findings suggest that press freedom contributes to global stock market stability.