Market share, investor horizon, and stock crash risk

Abstract

On a 1990–2016 sample of 78,594 firm-year observations, we document strong evidence of lower stock crash risk for more prominent firms (those with greater market share). This evidence is consistent across various proxies for stock crash risk, raw versus instrumented market share, and ordinary least squares versus logistic regressions. We also find that the market share's suppressing effect on stock crash risk is weakened by the relative prevalence of long-term investors. This moderating effect of investor horizon suggests the quasi-monopolistic insulation from market pressures as the explanation for the reduction in stock crash risk among more dominant firms.