Title: Stock liquidity and stock price crash risk

Authors: Bambang Sutrisno; Irwan Trinugroho; Taufiq Arifin; Tastaftiyan Risfandy

Addresses: Universitas Muhammadiyah Jakarta, Tangerang Selatan, 15419, Indonesia; Doctoral Program in Economics, Universitas Sebelas Maret, Surakarta, 57126, Indonesia ' Universitas Sebelas Maret, Surakarta, 57126, Indonesia ' Universitas Sebelas Maret, Surakarta, 57126, Indonesia ' Universitas Sebelas Maret, Surakarta, 57126, Indonesia

Abstract: Weak governance and high levels of volatility are characteristics of developing markets. Analysing stock price crash risk in these markets is crucial. We explore how stock liquidity impacts crash risk in Indonesia. Using 556 listed firms for 2011-2020 (3937 observations), this study reveals that crash risk is positively influenced by stock liquidity. This result aligns with the short-termism theory that high stock liquidity strengthens short-term pressure on corporate management, especially when investors are short-term outcome-oriented. In this situation, managers are more motivated to maintain short-term performance even by hiding negative information, which raises crash risk. Our primary finding remains robust based on several robustness tests. Additionally, this study reveals that the stock liquidity-crash risk link is moderated by foreign ownership.

Keywords: stock price crash risk; stock liquidity; foreign ownership; short-termism theory; bad news hoarding; emerging markets; Indonesia.

DOI: 10.1504/IJTGM.2025.151473

International Journal of Trade and Global Markets, 2025 Vol.21 No.6, pp.607 - 625

Received: 24 Jun 2025
Accepted: 15 Oct 2025
Published online: 02 Feb 2026 *

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