Does the financial flexibility prevent stock price crash risk during COVID-19 crisis? Evidence from the Vietnamese stock market

Abstract

Stock price crash risk is of particular interest in developing countries as it poses a significant threat to investors and can have detrimental effects on the stability of emerging markets. This study investigates the role of financial flexibility in preventing stock price crash risk in the Vietnamese stock market, with a specific focus on the COVID-19 pandemic. Using the fixed-effect, system GMM, and quantile regression methods on a sample of 645 Vietnamese listed firms from 2011 to 2021, this study found that financial flexibility has a significant impact on preventing stock price crash risk. This effect was augmented during the COVID-19 crisis. Furthermore, this study found that financial flexibility mitigated the impact of the COVID-19 crisis on stock price crash risk. The findings provide important implications for firm regulators, shareholders, and investors to respond to similar future crises.