ERM quality and stock price crash risk in sub-Saharan African firms: insights from corporate reputation and firm heterogeneity

Abstract

Purpose This study examines the relationship between ERM quality and stock price crash risk and whether this relationship is influenced by firm heterogeneity. It also examines the role of corporate reputation in the relationship between ERM quality and stock price crash risk. Design/methodology/approach A panel dataset of sub-Saharan African firms was used for the sample period 2014–2023. The data were analysed using the panel fixed effects estimation technique. Findings Using the NCSKEW framework of stock price crash risk, we find that ERM quality reduces both current and future stock price crash risk. We also find that corporate reputation is a transmission channel through which ERM quality influences stock price crash risk. The findings also reveal that across heterogeneous factors, our findings suggest that ERM quality significantly reduces stock price crash risk in large firms, high financial constraint firms, high debt firms, firms audited by Big 4 auditors, and conservative firms. These findings are consistent with alternative measures of ERM quality and stock price crash risk (DUVOL) and endogeneity concerns. Originality/value Corporate reputation mediates the link between ERM quality and stock price crash risk through the theoretical lens of information asymmetry theory.