Digital finance and stock price crash: Evidence from China

In this paper, we study the impact of digital finance on stock price crash risk based on 293 Chinese city-level digital finance indexes and all A-share listed companies from 2011 to 2022. We find that digital finance can decrease stock price crash risk by the Generalized Method of Moments (GMM) dynamic panel regression model. The promotion of digital transformation, the increase of information transparency, and the decrease of financial risks are three plausible channels that allow digital finance to reduce stock price crash risk. These mechanisms shed light on the pathways through which digital finance can enhance market stability. Furthermore, our investigation reveals that the reducing effect is more pronounced in higher competitive industries and new technology firms. The conclusion enriches and expands the research on digital finance and corporate stock price crash risk, providing a theoretical basis for improving and stabilizing the Chinese capital market and promoting the development strategy of digital finance.