How languages differ: Evidence from firm-level stock price crash risk in 36 countries

Abstract

Speakers of weak future time reference (FTR) languages (e.g., Chinese) do not need to grammatically mark future events, whereas speakers of strong FTR languages (e.g., English) do. We conjectured that weak FTR languages lead speakers to hold less precise beliefs about timing and, hence, are associated with higher stock price crash risk. Accordingly, using a comprehensive sample of firms in 36 countries (regions) with 221,414 observations from 1988 to 2017, we found that stock price crash risk was significantly higher in regions dominated by speakers of weak FTR languages. Furthermore, the effect of FTR on stock price crash risk was weakened in countries with stronger formal and informal institutions (e.g., high disclosure quality, greater transparency, and less corruption). Our results gave a new explanation for the heterogeneity in stock price crash risk, provided insights into whether language is an economic institution, and added to the research on the effects of languages on economic and financial outcomes.