Determinants of Stock Price Crash Probability: Evidence From Size Sorted Deciles

  • Ammara Riaz Chohan national university of modern languages
  • Dr Faid Gul
  • Dr Fauzia Mubarik
Keywords: Stock Price crash probability, Pakistan, Board Size, Foreign investors, Green energy transition, size sorted deciles


Concept of stock price crash probability is gaining interest in recent years. Less work is done in developing economies on the areas of political and economic instability, volatile conditions and uncertainty in financial markets. Pakistan, being the emerging country, still needs to focus this topic in order to mitigate chances of severe crashes. Firms can achieve sustainability by strengthening the corporate governance mechanism. So, this study aims at studying the determinants related to internal and external governance mechanism, and their impact on Stock Price crash probability on size sorted deciles. Feasible generalized least square (FGLS) is used to determine their relation by utilizing two proxies of stock price crash probability. With negative coefficient of skewness (NCSKEW), results suggest that board size, foreign investors and green energy transition are significant determinants of stock price crash probability for low deciles. While for top deciles, foreign investors and green energy transition are significantly related. Results deduced from Down to up volatility (DUVOL), another proxy used as a robustness analysis, suggest the same with the exception of one. This study assists investors and regulators to timely predict the chances of a stock price crash and make decisions accordingly. However, this study has certain limitations as some other factors like audit quality, number of female directors, inflation and economic policy uncertainty etc. can also be included to affect the stock performance. Some of these factors may be included in future studies for a more comprehensive understanding of the stock price crash probability. Furthermore, a comparative analysis may be carry out between the developed and developing economies to study the pattern of stock price crash probability.