There are several mechanisms by which migration fear may be associated with future stock price crash risk. We first study the effect of migration fear on firm-level stock price crash risk. In both models, we find that the change in migration fear has a positive and statistically significant effect on the change in stock price collision risk.
After controlling for simultaneity, we still find that fear of migration has a positive and statistically significant effect on the risk of stock price crashes. We find that the coefficient for the interaction term is positive and statistically significant both measures of CRASH_RISK. We find that the effect of both of these measures is positive and statistically significant for both measures of stock price crash risk.
We consider whether the effect of migration fears on crash risk is different in election years. This suggests that the effect of the fear of migration on the accident risk is lower in election years. We consider whether the effect of migration fears on the risk of stock price crashes is lower when the party in power in a state is Democrat or Republican.
In panel A, we find that the effect of fear of migration on accident risk is positive and significant in both regimes.
Social Capital, Corporate Social Responsibility and Migration Fear
We document that predictable patterns exist in the relationship between fear of migration and the risk of a crash in the stock prices of companies belonging to certain politically favored sectors. Following Addoum and Kumar (2016), we construct samples of firms that rank among the top five industries most favored by the Republican and Democratic presidencies.7 We find that the effect of migration fear on crash risk is positive and significant for companies in sectors favored by Democrats, while no such effect exists for companies in sectors favored by Republicans. We then focus on an alternative mechanism of how “internal social capital” may influence this relationship.
Consistent with our hypothesis, we find that the effect of migration fear on crash risk is negative and statistically significant, both measures of CRASH_RISK when the firm engages in CSR activities. These results support our hypothesis that a potential channel for migration risk to affect firm-level stock price crash risk is through social capital. Furthermore, we extend a similar argument with an alternative proxy for “internal social capital”.
Consistent with our hypothesis, we find that the effect of F EAR on CRASH_RISK is positive and significant in firms without foreign subsidiaries, while the effect is insignificant for firms with foreign subsidiaries. Taken together, all results support the idea that social capital and trust play an important role in mitigating the effect of migration fear on accident risk.
Investment Sentiment and Migration Fear
We find that the interaction terms in all specifications are negative and statistically significant at the 1% level. This confirms our previous findings that the effect of migration fears on crash risk is also lower when the investor sentiment index is higher.
Channel Testing
4 Concluding remarks
Our article adds to the literature in this field by focusing on migration fears and asking whether such fears in the economy have negative consequences for financial markets. In particular, our article investigates the connection between the risk of migration fears and the risk of a company's share price crash. In addition, we also consider the extent to which other factors reinforce or mediate these decisions.
We find strong evidence that fear of migration has a positive and significant effect for firms with lower capital and social trust and in firms with greater asymmetric information. Furthermore, we find that the fear effect is lower under “Democratic Presidencies” and in firms located in areas with a larger proportion of the immigrant population. Our evidence further shows that the positive association between fear of migration and risk of future bankruptcy is stronger for more liquid firms and for smaller firms.
This conclusion is consistent with the view that fear can dramatically change risk tolerance in financial markets. To start, we check whether migration fear is a proxy for economic policy uncertainty and find that it is not. In addition, we use a first-differenced regression specification to control for “measurement error” problems.
Furthermore, to address concerns about “endogeneity,” we implement a 2SLS instrumental variable strategy by using the average migration fear scores for three different countries for the same period as the instrumental variable.
2001), 'Predicting Crashes: Trading Volume, Past Returns, and Conditional Skewness in Stock Prices', Journal of Financial Economics. 2014), 'Corporate social responsibility and stock price crash risk', Journal of Banking & Finance Retail investor attention and stock price crash risk: evidence from China, International Review of Financial Analysis65, 101376.
5 Figures and Tables
This table reports the estimation result of Equation (4) and tests the effect of migration fear on stock price crash risk. Clustered standard errors by firm and year are reported in parentheses with 1%, 5%, and 10% significance levels indicated by ***, **, and. Clustered standard errors by firm and year are reported in parentheses with 1%, 5%, and 10% significance levels indicated by ***, **, and *, respectively.
Grouped standard errors by firm are reported in parentheses with 1%, 5%, and 10% significance level indicated by. This table reports the estimation results of the effect of migration fear on company-level stock price crash risk using the migration fear index (F ear) developed by Baker et al.
Appendix A
Variable Definition Data Sources M S This is Managerial Sentiment Index developed by Jiang, Lee, Martin and. Available at12 ELECTION A simple variable that equals one if it is the election year in the. DEM OCRAT A dummy variable equal to one if a Democratic president is in office in a given year, and zero otherwise.
P ART Y −DEM A dummy variable that equals one if the Democratic Party is in power in a given state in a given year, and zero otherwise. P ART Y −REP A dummy variable that equals one if the Republican Party is in power in a given state in a given year, and nothing otherwise. F AV −DEM A dummy variable equal to one for the five industries favored by Democratic presidents and nothing else.
Addoum and Kumar (2016) F AV −REP A dummy variable equal to one for the five industries preferred by. Addoum and Kumar (2016) FOREIGN BORN Natural logarithm of the population of foreign born in each state. American National Election Studies database J OB Total number of participants said it is very or extremely likely.
US National Database of Electoral Studies SOCIACAP It is a state-level index of social capital developed by Rupasingha. Available at 1 pm IHU D This is (Amihud, 2002) the impact of trading (il)liquidity on the price. SP READ is a measure of (il)liquidity based on bid-ask spreads, formulated by (Corwin and Schultz, 2012) as daily demand minus bid prices above the average of ask and bid prices.
T ON E We use Loughran and McDonald (2016) management tone, positive management tone and negative management tone, and create T ON E, T ON Epos andT oneneg.
