Bank loan loss accounting treatments,credit cycles and crash risk

Banks that follow conditional conservatism in their loan loss accounting treatments benefit from a reduction in crash risk. The key discretionary loan loss accounting channels are provisions and allowances. We show that conditional conservatism reduces crash risk of small banks during periods of credit contraction and boom. Interestingly, for large banks, crash risk is not reduced by more conservative accounting even for those with higher levels of opacity. Hence regulation prompting for more conservative bank loan loss accounting does not present a significant opportunity to limit systemic effects arising from abrupt price declines in the stocks of large banks.     

What firm risk factors drive bank loan pricing and other terms? Evidence from China

This study investigates how firm risk factors affect bank loan pricing. Although firm-specific stock price crash risk affects bank loan costs directly, it also prompts other risks, including financial restatement and litigation, which in turn trigger higher bank loan costs. Strong internal and external governance mechanisms help reduce agency problems and improve information transparency, alleviating the adverse effect of stock price crash risk on loan costs. Our results confirm that bankers take good corporate governance into account in their bank loan decisions. We also show that bond investors price the adverse effect of stock price crash risk, prompting higher corporate bond costs. Futher evidence suggests that banks impose stricter non-price terms, such as smaller loan size, shorter loan maturity, and a higher likelihood of collateral requirement, on firms with higher crash risk.     

Controlling shareholder share pledging and stock price crash risk: Evidence from China

Using the unique setting of the Chinese market from 2003 to 2018, this study examines how share pledging behavior affects firms' stock price crash risk by analyzing the costs and benefits of the controlling shareholder's pledging decision to hoard bad news. We find that during the controlling shareholder share-pledging period, pledged firms exhibit significantly higher future stock price crash risk than their non-pledged counterparts. The risk is also higher during this period relative to in shareholders' own pre-pledging and post-pledging benchmark periods. Considering the internal and external information environment, we further observe a less pronounced increase in stock price crash risk for pledged firms with a strong internal control system and for those with more media attention. Together, our results reveal controlling shareholders' hedging motivations for engaging in pledging activities and the role played by the internal and external information environment in constraining the opportunistic behavior of controlling shareholders.     

Determinants of risk in the banking sector during the European Financial Crisis

Risk assessment in the banking sector has been a prominent topic in the banking literature and has gained attention especially since the recent financial crises. In particular, the European crisis, which was the first since the formation of the Eurozone, underlined a number of significant problems and increased concerns on the tail or crash risk of banks. In the present study, we seek to examine whether information asymmetry, the importance of banks in the financial system and systemic risk play significant roles in the evolution of stock crashes in the banking sector. Information asymmetry is proxied by opacity, the importance of a bank in a financial network is proxied by network centrality, and systemic risk is proxied by clustering. The research framework considers a number of regulatory, reporting and financial market factors that have also been determined to relate to stock crashes and shows that all of the above factors are related to (idiosyncratic) stock crash risk under specific conditions.     

Internal whistleblowing and stock price crash risk

We investigate the impact of internal whistleblowing on stock price crash risk in China. We expect that internal whistleblowing plays a crucial role in preventing firms from misconducting, which would result in a lower stock price crash risk. Consistent with this conjecture, the empirical evidence negatively correlates internal whistleblowing and stock price crash risk. Our results remain robust when adopting the instrumental variable, propensity matching method, and Heckman's two-stage model. Path analysis shows that internal whistleblowing lowers the crash risk by reducing firms' accounting violations and executives' frauds. The effect is more pronounced in firms with a positive organizational environment and non-state-owned firms. Overall, the study contributes to the emerging literature on the governance role of whistleblowing.     

Institutional investors’ information seeking and stock price crash risk: nonlinear relationship based on management’s opportunistic behaviour

This paper examines the influence of management’s opportunistic behaviour on the relationship between institutional investors’ visits and stock price crash risk. We find that the relationship between visit frequency and stock price crash risk is inverted U-shaped because of management’s opportunistic behaviour aiming at avoiding the negative impacts of visit. Institutional investors’ visits raise stock price crash risk when visit frequency is low and it can reduce crash risk just when visit frequency is high enough. This nonlinear relationship is more significant when management’s opportunistic behaviour is highly motivated and the implementation space is larger.     

无权处分场合买卖合同的效力与权利瑕疵担保

《民法典》第597条第1款的主要规范目的是,无权处分不影响买卖合同的效力。只要承认权利人的追认会产生所有权变动的效果,就适宜承认存在效力未定的处分行为。区分负担行为和处分行为,在解释论上具有可取之处。在传统债法上,无权处分致使给付不能的,存在适用债务不履行责任抑或权利瑕疵担保责任的争论,两方面规定在构成要件上有实质区别。我国《民法典》合同编实行救济进路,第三人享有所有权、抵押权等权利致使所有权不能转移的,当事人可以选择适用《民法典》第597条第1款或第612条,两者在违约责任的构成要件和效果上并无实质区别。《民法典》第612条中规定的第三人“享有权利”文义范围较窄,应当对其进行目的论扩张,将第三人“过去享有权利”且主张权利的一些情形纳入其中;即使买受人构成善意取得,仍可认定出卖人违反权利瑕疵担保义务。     

The Interaction of the IFRS 9 Expected Loss Approach with Supervisory Rules and Implications for Financial Stability

This paper examines the interaction of the International Financial Reporting Standard (IFRS) 9 expected credit loss (ECL) model with supervisory rules and discusses potential implications for financial stability in the European Union. Compared to the incurred loss approach of IAS 39, the IFRS 9 ECL model incorporates earlier and larger impairment allowances and is more closely aligned with regulatory expected loss. The earlier recognition of credit losses will reduce the build-up of loss overhangs and the overstatement of regulatory capital. In addition, extended disclosure requirements are likely to contribute to more effective market discipline. Through these channels IFRS 9 might enhance financial stability. However, due to the reliance on point-in-time estimates of the main input parameters (probability of default and loss given default) IFRS 9 ECLs will increase the volatility of regulatory capital for some banks. Furthermore, the ECL model provides significant room for managerial discretion. Bank supervisors might play an important role in the implementation of IFRS 9, but too much supervisory intervention bears the risk of introducing a prudential bias into loan loss accounting that compromises the integrity of financial reporting. Overall, the potential benefits of the standard will crucially depend on its proper and consistent application across jurisdictions.     

Does corporate eco-innovation affect stock price crash risk?

We examine the effect of corporate environmental innovation (hereafter eco-innovation) on stock price crash risk and document a significant negative association. Utilising a large sample of publicly listed U.S. firms for the period 2003 to 2017, we find that an increase in eco-innovation from the 25th to the 75th percentile is associated with 17.62% reduction in stock price crash risk. This outcome remains robust to a variety of sensitivity tests and after accounting for potential endogeneity concerns. Eco-innovative firms attract more institutional investors and equity analyst following and disclose more information leading to lower stock price crash risk. Additional tests reveal that the negative effect of eco-innovation is contingent on the political leadership's ideology and environmental sensitivity. Our paper contributes to the ongoing discourse on the costs and benefits of eco-innovation, documenting the value-enhancing perspective of eco-innovation.     

经济政策不确定性、意见分歧与股价崩盘风险

基于中文媒体构建的中国经济政策不确定性指数,研究经济政策不确定性对股价崩盘风险的影响效果和机制。结果显示：经济政策不确定性的提高会显著加剧股价崩盘风险,这表明经济政策不确定性是崩盘风险的诱因之一。通过对影响机制检验发现,经济政策不确定性对股价崩盘风险的正向作用,随着投资者意见分歧的增加而加强。在宏观经济良好时期,非国有股权和规模较大的企业,经济政策不确定性并未明显加剧股价崩盘风险,甚至起到了缓解股价崩盘风险的作用。     

Does social media coverage deter firms from withholding bad news? Evidence from stock price crash risk

Using a comprehensive dataset for listed companies between 2010 and 2020, we document that social media coverage can reduce managers' incentives and capabilities to withhold bad news (i.e., reduce stock price crash risk). The results remain robust in the test of solving endogenous problems. Compared with other external governance mechanisms (other media sources, external auditors, financial analysts, and institutional shareholders), social media coverage plays a complementary role in reducing stock price crash risk when there is increased monitoring by other external monitoring mechanisms. Additional tests show that social media coverage reduces crash risk when managers have greater incentives to hoard bad news.     

Does media coverage deter firms from withholding bad news? Evidence from stock price crash risk

Spurred by the informational and disciplinary roles that the media fulfils, this study provides initial evidence on how higher media coverage is associated with a lower tendency of firms withholding bad news, proxied by stock price crash risk. Our main findings are robust to a battery of tests that account for endogeneity concerns including a difference-in-differences analysis based on newspaper closures that exogenously reduce media coverage and a regression-discontinuity design analysis based on the top band of Russell 2000 and lower band of Russell 1000 index stocks. Additional tests reveal that the negative relation between media coverage and stock price crash risk is concentrated within firms with more negative and novel news coverage and firms with higher litigation or reputation risks. We also find that media plays an important role in reducing future stock price crash risk when there is reduced monitoring by other external monitoring mechanisms such as external auditors, financial analysts, and institutional shareholders.     

News-based ESG sentiment and stock price crash risk

From the perspective of ESG news-based sentiment, we examine the impact of ESG performance on stock price crash risk. This paper constructs a sentiment index based on ESG news to measure public opinion of listed firms. First, there is a significant negative relationship between ESG news sentiment and stock price crash risk, indicating that higher ESG news sentiment can reduce the crash risk. Second, heterogeneity analysis demonstrates that ESG sentiment has a greater impact on crash risk reduction for firms with lower analyst coverage, lower information transparency, voluntary ESG information disclosure and non-state-owned. In addition, mechanism tests indicate that ESG sentiment affects stock price crash risk by reducing negative ESG incidents, information asymmetry, and agency costs. This paper examines the research inference that ESG news sentiment is beneficial in reducing stock price crash risk and expands the research on the governance mechanism of stock price crash risk.     

Stock price crash risk and internal control weakness: presence vs. disclosure effect

This study examines the stock price crash risk for a sample of firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes‐Oxley Act (SOX). We find that in the year prior to the initial disclosures, ICW firms are more crash‐prone than firms with effective internal controls. This positive relation is more pronounced when weakness problems are associated with a firm's financial reporting process. More importantly, we find that stock price crash risk reduces significantly after the disclosures of ICWs, despite the disclosure itself signalling bad news. The above results hold after controlling for various firm‐specific determinants of crash risk and ICWs. Using an ICW disclosure as a natural experiment, our study attempts to isolate the presence effect of undisclosed ICWs from the initial disclosure effect of internal control weakness on stock price crash risk. In so doing, we provide more direct evidence on the causal relation between the quality of financial reporting and stock price crash risk.     

Do political connections affect stock price crash risk? Firm-level evidence from China

Using a sample of Chinese listed firms in the period from 2003 to 2012, this paper empirically investigates how the presence of politically connected directors affects stock price crash risk. We thereby make a distinction between listed state-controlled firms and privately controlled firms due to their different incentives to appoint politicians as directors on the board. Our empirical results show that politically connected directors exacerbate stock price crash risk in listed state-controlled firms, an effect driven by the appointment of local government officials as directors. In contrast, hiring politicians as directors, particularly central-government-affiliated directors, helps listed privately controlled firms to reduce stock price crash risk. Finally, good quality of institutions does not help to alleviate the positive relationship between political connections and stock price crash risk in listed state-controlled firms. However, it does weaken the role of political connections in reducing crash risk in listed privately controlled firms.     

海归高管抑制了股价崩盘风险吗？

以我国A股上市公司2009—2017年数据为样本,研究高管的海外经历对公司未来股价崩盘风险的影响。发现海归高管有助于降低公司未来股价的崩盘风险,在多种稳健性检验并控制内生性问题后,以上结论仍然成立。另外,海归高管降低股价崩盘的效果在分析师关注较少的企业以及外部审计质量较弱的企业中表现得更加明显。机制分析表明,海归高管通过降低公司过度投资以及提高会计信息质量来抑制股价崩盘风险。     

Intangible intensity and stock price crash risk

We evaluate the association between intangible intensity and stock price crash risk for U.S. listed firms from 1983 to 2017. The results show that intangible-intensive firms are associated with high crash risk. The decomposition of intangible intensity identifies goodwill as the driving force and documents its predictability for future impairment events. Moreover, intangible intensity affects stock price crash risk mainly through increased information asymmetry, and the positive association increases with stock price synchronicity, CEO risk-taking incentives, and shareholder litigation risk. Our findings demonstrate the fragility of intangible assets and provide implications for financial regulation and portfolio management.     

金融创新、公允价值计量与商业银行股票崩盘风险

选取我国沪深两市A股上市商业银行作为研究对象,利用2007—2017年年报数据,实证研究金融创新对商业银行股票崩盘风险的影响。在此基础上,以公允价值计量作为中介变量研究其在金融创新对商业银行股票崩盘风险影响中的作用机理。研究发现：金融创新与商业银行股票崩盘风险负相关,公允价值计量在其中发挥部分中介效应的同时也增加了商业银行股票崩盘风险。在当前鼓励创新和防范化解重大金融风险的背景下,应当大力提倡金融创新,通过公司治理和内部控制来规范公允价值计量的使用。     

Institutional cross-ownership and stock price crash risk

Using manually collected data of Chinese listed firms during the period 2007–2018, we provide strong and robust evidence that institutional cross-ownership is negatively associated with firm-specific stock price crash risk. Building on China’s institutional settings, we document that the negative relation is more pronounced for firms located in provinces with higher political uncertainty, or state-owned enterprises. This paper also conducts several mechanisms analyses and has confirmed three potential influencing mechanisms, such as information advantage, governance improvement and anticompetitive incentives, in explaining the effect of institutional cross-ownership on stock price crash risk. Overall, this paper develops a new perspective to investigate the ways to alleviate stock price crash risk in emerging markets.     

Accounting regulations,enforcement, and stock price crash risk: Global evidence in the banking industry

This study uses the banking industry as a unique testing setting to examine the impact of accounting and enforcement regulations on stock price crash risk. We find that stocks are less likely to crash in countries with stricter accounting regulations and enforcement standards. More importantly, we provide evidence that the impact of accounting regulations is more significant in countries with stricter enforcement standards, suggesting that enforcement mechanisms and accounting regulations are complementary. We find that the main channels for accounting regulations and enforcement standards to affect stock price crash risk are regulations that strengthen information disclosure and improve the effects of direct supervision and external auditors. Our findings are robust after we include more control variables, employ regional regulatory developments as instrumental variables, conduct change regressions, use alternative measures of enforcement, and estimate in various subsamples. Our study has policy implications for how to design accounting regulations and enforcement mechanisms in a more effective manner.