Excess perks and stock price crash risk: Evidence from China |
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| Institution: | 1. School of Business, Renmin University of China, Beijing 100872, China;2. School of Public Finance, Central University of Finance and Economics, Beijing 100081, China;3. Department of Accounting, University of Melbourne, Melbourne, VIC 3010, Australia;4. Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101, Kentucky, United States;1. School of Business, Renmin University of China, China;2. School of Accountancy, Central University of Finance and Economics, China;3. Business School, Hunan University, No. 109 Shijiachong Road, Yuelu District, Changsha, Hunan 410006, China;1. School of Accountancy, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing, 100081, China;2. Gabelli School of Business, Fordham University, 113 West 60th Street, New York, NY, 10023, United States;1. College of Business Economics, Qatar University, Doha, Qatar;2. Gerald Schwartz School of Business, St. Francis Xavier University, Antigonish, Nova Scotia, Canada |
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| Abstract: | We investigate the impact of excess perk consumption on crash risk in state-owned enterprises in China. To enjoy excess perks, executives in state-owned enterprises have an incentive to withhold bad news for extended periods, leading to higher future stock price crash risk. Consistent with this assertion, we find a positive correlation between excess perks and crash risk. The findings are robust to the inclusion of other determinants of crash risk identified in the literature, such as earnings management, conditional conservatism, and firm-level corporate governance mechanisms. The results still hold after accounting for possible endogeneity issues using a two-stage least squares estimation. Earnings management (conditional conservatism) helps amplify (lessen) this impact. Moreover, better external monitoring mitigates the impact of excess perks on firm crash risk. We further find that the impact of excess perks on crash risk is more pronounced in firms whose executives are approaching retirement and persists for at least two years. |
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