This paper examines the relationship between cartel engagement and stock price crash risk by investigating managerial behaviour in withholding negative information within cartel firms. Utilizing an extensive dataset of 145 U.S. companies involved in 208 international cartel conspiracies identified between 1985 and 2016, this study adopts firm-specific measures of stock price crash risk, specifically negative skewness, down-to-up volatility, and a binary crash indicator. Empirical findings indicate that firms engaging in price-fixing cartels exhibit significantly lower stock price crash risk. This result suggests that cartel managers avoid withholding adverse news due to maintaining high financial transparency for effective cartel coordination, thus reducing information asymmetry. Cross-sectional analyses further reveal that the mitigating effect of cartel engagement on crash risk is more pronounced among firms operating under heightened product market competition and lower financial distress conditions. Robustness checks employing instrumental variable analysis, entropy balancing, and confounding variable threshold tests support the validity of these findings. This paper contributes uniquely to the existing literature by uncovering the nuanced dynamics between explicit collusion, transparency practices, and subsequent crash risk. The results highlight critical implications for investors in portfolio risk management decisions and regulators concerning cartel detection and disclosure policies. JEL Codes: G14, L41, D82 Keywords: Cartel Engagement, Stock Price Crash Risk, Information Disclosure, Financial Transparency, Product Market Competition.
Diantini et al. (2025) studied this question.