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.     

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.     

The effect of affiliated analysts on stock recommendations: Evidence from share pledges in China

We use the share pledge context in China to examine how affiliated analysts whose securities companies are pledgees of share pledge firms issue stock recommendations on these listed firms. We find that their recommendations are more optimistic than those of non-affiliated analysts, and they are more likely to issue Buy and Add recommendations, suggesting that they issue optimistic rating reports for share pledge firms due to their conflicts of interest. We also find a dynamic adjustment in the stock recommendation behavior of these analysts, and their probability after issuing optimistic stock recommendations is significantly reduced before and after the years that the affiliation relationship between them and share pledge firms both began and ended. These affiliated analysts continue to issue optimistic stock recommendations after visiting the share pledge firms if they work in the same location as the firms, or if they are star analysts among New Fortune’s “top five analysts,” and when the information transparency of the share pledge firms is higher. In addition, the optimistic stock recommendation behavior of affiliated analysts is more significant in our sample of firms with high share pledge ratios and downward stock price pressure. The earnings forecast quality of affiliated analysts is also found to be lower, and they are less inclined to downgrade stock recommendations for these share pledge firms. Buy recommendations issued by both non-affiliated and affiliated analysts can bring cumulative excess returns in the short event window, but those issued by affiliated analysts are significantly negative in the long-term event window, and significantly lower than those issued by non-affiliated analysts. Overall, our study shows that affiliated analysts issue optimistic rating reports on share pledge firms due to conflicts of interest, which leads to decision-making bias in investors and thus decreases the stock price crash risk of the firms. Our findings further reveal the economic consequences of share pledging and extend our understanding of the behavior of analysts in a conflict of interest situation from the share pledge perspective.     

政治关系、制度环境与股票价格的信息含量——来自我国民营上市公司股价同步性的经验证据

以2004～2007年间所有的民营A股上市公司为样本,本文对政治关系与股票价格的信息含量(以公司的股价同步性衡量)之间的关系进行了实证检验。检验结果发现,与没有政治关系的公司相比,有政治关系的公司的股票价格同步性显著较高。并且,政治关系与股票价格同步性之间的正相关关系只在市场化程度较低、政府干预较多以及法制水平较差的地区存在。进一步区分政治关系的类型发现,代表委员类政治关系显著提高了公司的股价同步性,而政府官员类政治关系对股价同步性的影响则不显著。     

Do political connection disruptions increase labor costs in a government-dominated market? Evidence from publicly listed companies in China

This paper investigates whether the disruption of political connections increases labor costs among Chinese listed firms. Using the Communist Party of China's Rule No. 18 as an exogenous shock that forces firms to lose their politically connected independent directors, we find that the disruption of political connections is associated with an increase in labor costs (both in terms of aggregate labor costs per firm and average labor costs per employee) and an increase in employee turnover. Such increases do not lead to labor productivity improvements, and cannot be attributed to changes in corporate policies or the composition of labor forces after Rule No. 18. We also find that firms with higher unemployment risk and skilled labor risk increase their labor costs to a larger extent. Our results are robust to alternative labor cost measures, controlling for potential confounding events, and alternative political connection channels. Our study shows an unintended labor market consequence—increases in labor costs—of political connection disruptions for firms that are adversely affected by such disruptions.     

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.     

The effect of suppliers' corporate social responsibility concerns on customers' stock price crash risk

We investigate the spillover effect of corporate social responsibility (CSR) concerns along the supply chain. We propose an information incorporation effect for whether suppliers' CSR concerns affect customers' stock price crash risk. Customers' investors can incorporate information about suppliers' CSR into stock price valuations, lowering the probability of abrupt stock price crashes. Our findings support the information incorporation effect. Suppliers' CSR concerns are negatively associated with customers' stock price crash risk. The negative relationship is more pronounced for firms with high media coverage, negative media sentiment, high investor attention, negative investor sentiment, low trade policy uncertainty, and low political uncertainty. Moreover, we rule out the alternative explanation that suppliers' CSR strengths dominate the effect. Our main finding is supported by change analysis and robustness tests, including an alternative measure test.     

地方官员更替、企业辖区知名度与股价同步性

以2009～2013年我国A股上市公司为研究样本,实证分析地方官员更替、辖区企业知名度与股价同步性的关系,结果表明:地市级政府官员变更所带来的政治不确定性会显著降低辖区企业的股价同步性,并且相对于新任官员来源于本地而言,新任官员来源于异地更能够显著地降低辖区内企业的股价同步性.进一步研究还发现,当地市级政府官员发生变更时,相对于辖区知名度较高的企业而言,辖区知名度较低的企业会披露更多的企业私有信息以应对政治不确定性风险,从而其股价同步性有了更大程度的降低.研究的结论证实了政治不确定风险的增加能够显著降低辖区内企业的股价同步性,客观上有助于提高股价的信息含量.     

金融同业活动与实体企业经营风险——来自地区层面同业存单业务的证据

本文研究了地区层面金融同业活动对实体企业经营风险的影响。基于各省份金融机构开启同业存单业务的研究表明,地区层面金融同业活动显著提升了当地上市企业股价大幅下跌的风险。进一步研究表明,随着同业存单业务的发展,当地上市企业债务融资成本和风险水平有所上升,而业绩表现和市场价值有所下降。上述发现表明,企业融资链条变长后,信贷市场道德风险上升,部分企业因风险偏好增强导致经营风险上升,更容易突然出现负面事件而导致股价大幅下跌。本文的发现揭示了金融同业活动存在监管规避的可能性及其影响实体企业的潜在路径,凸显了完善金融监管以更好服务实体经济发展的重要现实意义。     

金融同业活动与实体企业经营风险——来自地区层面同业存单业务的证据

本文研究了地区层面金融同业活动对实体企业经营风险的影响。基于各省份金融机构开启同业存单业务的研究表明,地区层面金融同业活动显著提升了当地上市企业股价大幅下跌的风险。进一步研究表明,随着同业存单业务的发展,当地上市企业债务融资成本和风险水平有所上升,而业绩表现和市场价值有所下降。上述发现表明,企业融资链条变长后,信贷市场道德风险上升,部分企业因风险偏好增强导致经营风险上升,更容易突然出现负面事件而导致股价大幅下跌。本文的发现揭示了金融同业活动存在监管规避的可能性及其影响实体企业的潜在路径,凸显了完善金融监管以更好服务实体经济发展的重要现实意义。     

Politicians and the IPO decision: The impact of impending political promotions on IPO activity in China

This paper shows that incentives created by the impending turnover of local politicians can accelerate the pace of initial public offering (IPO) activity in certain politicized environments. Focusing on China, we exploit a research setting where politicians are rewarded for capital market development, firms rely on political connections for access to capital, rent-seeking behavior is rampant, and the objectives of the state might not be to maximize capital market efficiency. We find that the rate of exchange eligible firms engaging in an IPO temporarily increases in advance of impending political promotion events. This effect holds for both state-owned and non-state-owned entities. For state-owned firms, the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity. For non-state-owned firms, the temporary increase in IPO activity appears to be (rationally) opportunistic in nature, with the effect stronger around events more likely to disrupt the firms' political connections. Promotion period IPOs underperform non-promotion period IPOs in terms of both future financial performance and long-run stock returns, have controlling shareholders who retain a larger fraction of the company, and are more likely to divert proceeds away from their intended use after the offering.     

Does preventive regulation reduce stock price synchronicity? Evidence from Chinese annual report comment letters

Based on a sample of Chinese A-share listed firms from 2015 to 2018, this paper studies the impact of annual report comment letters (ARCLs) on firm stock price synchronicity. We find that after firms receive ARCLs, their stock price synchronicity decreases. Moreover, the longer the ARCLs and the more negative the ARCLs’ tone, the lower the resulting stock price synchronicity. The mechanism test shows that after firms receive ARCLs, the firms’ information disclosure increases in quantity and quality, external media attention increases, and the firms’ governance improves, reducing their stock price synchronicity. Further research shows that this negative association is more significant in firms with higher information asymmetry. This paper shows that the ARCL, an innovative application of the capital market supervision philosophy, is conducive to improving the quality of listed firms and to the healthy development of the capital market.     

Stock Crashes and Jumps Reactions to Information Demand and Supply: An Intraday Analysis

The objective of this paper is to examine the possible linkage between the intraday stock price crashes and jumps and public information by using data from the Chinese stock market and Baidu Index. We divided public information into two kinds of information: supply through online media and information demand across inquiries by individual investors. Using a large sample from Chinese listed firms from 2013 to 2019, our evidence clearly indicates that online information supply and demand both have a positive impact on the intraday crashes and jumps; this is, the firm with higher information supply and demand more likely to experience intraday crashes and jumps. The results are robust to an alternative measure of crash risk. Moreover, we further examine whether the market conditions have an impact on the relationship between information flow and intraday crashes and jumps, and find that the marginal effect of information supply on intraday price crashes and jumps is smaller in the bull market phase. Moreover, the bull market phase enhances the effect of information demand on intraday price crashes and jumps.

     

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.     

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。     

政治关联的不确定性与企业经营风险——基于上市公司的案例分析

中国企业的政治关联,特别是企业与政治人物的关系长久以来都对企业的财务情况、企业业绩和股票价格有着深刻的影响。采用案例分析方法,对金螳螂、惠生工程和佳兆业三个具有政治关联的上市企业,在相关政治人物在任和“落马”前后的业绩和市值表现进行分析发现：上市企业与政治人物,特别是地方官员的紧密关系,能够帮助企业通过关联官员取得政策、信贷、信息资源,提升企业竞争能力和企业业绩,在企业初创和发展阶段能够为企业发展带来重大机遇,提升企业的市场价值。但这种政治关联,也会使企业面临成为政府官员权力寻租工具的风险,最终由于政治人物政治前途的不确定性造成风险,即使在企业业绩并未出现大幅下降的情况下,受到市场恐慌情绪影响,企业市场价值面临巨大下跌风险,并影响到企业的长远发展。     

Large controlling shareholders and stock price synchronicity

This paper examines the effect of controlling shareholders on stock price synchronicity by focusing on two salient corporate governance features in a concentrated ownership setting, namely, ultimate cash flow rights and the separation of voting and cash flow rights (i.e., excess control). Using a unique dataset of 654 French listed firms spanning 1998–2007, this study provides evidence that stock price synchronicity increases with excess control, supporting the argument that controlling shareholders tend to disclose less firm-specific information to conceal opportunistic practices. Additionally, this study shows that firms with substantial excess control are more likely to experience stock price crashes, consistent with the conjecture that controlling shareholders are more likely to hoard bad information when their control rights exceed their cash flow rights. Another important finding is that firms’ stock prices are less synchronous and less likely to crash when controlling shareholders own a large fraction of cash flow rights. This is consistent with the argument that controlling shareholders have less incentive to adopt poor disclosure policies and to accumulate bad news, since high cash flow ownership aligns their interests with those of minority investors.     

Trust and stock price crash risk: Evidence from China

This paper examines the impact of social trust on stock price crash risk. Social trust measures the level of mutual trust among the members of a society. Using a large sample of Chinese listed firms for the 2001–2015 period, we find that firms headquartered in regions of high social trust tend to have smaller crash risks. This result is robust to a battery of sensitivity tests and is more prominent for State-Owned Enterprises (SOEs), for firms with weak monitoring, and for firms with higher risk-taking. Moreover, we observe that firms in regions of high social trust are associated with higher accounting conservatism and fewer financial restatements. Our study suggests that social trust is an important variable that is omitted in the literature investigating the predictors of stock price crashes.     

Security Analysts’ Site Visits and Stock Price Synchronicity

This paper investigates how security analysts’ corporate site visits impact listed firms’ stock-price informativeness. Examining a sample of security analysts’ visits to Chinese listed firms from 2010 to 2019, we find that security analysts incorporate firm-specific information into share prices through site visits, significantly reducing the visited firms’ stock price synchronicity. This finding is robust to an alternative measure of stock price informativeness and a two-stage least-squares approach using the introduction of high-speed rail as the instrumental variable. We also find that the impact of analysts’ site visits on firms’ stock price synchronicity is more pronounced for firms with lower information disclosure quality and poor corporate governance than for other firms. Further analysis on firm characteristics documents that this effect is stronger for large-size firms, firms in the manufacturing industry, and state-owned enterprises.     

Financial distress risk and stock price crashes

This study uses 462,678 monthly observations of US-listed firms for the period 1990–2018 to document a strong positive relationship between short-term changes in financial distress risk and future stock price crashes. This result is economically significant as a one interquartile increase of the main explanatory variable in any month increases the probability of a stock price crash by 8.33% relative to its mean value. The findings withstand controls for a large array of variables, firm-fixed effect estimations, and alternative definitions of distress and crash risk measures; they are also robust to a range of tests conducted to buttress against endogeneity concerns. The study conducts analyses demonstrating that the positive distress-crash risk relationship is driven by managerial opportunism that seeks to camouflage bad news that has an adverse effect on firms' economic fundamentals. Accordingly, the findings corroborate an agency theory explanation for the impact of distress risk on stock price crashes. This study offers practical insights to investors, who should be vigilant of a firm's distress risk, as sudden short-term increases underscore withheld negative information pertinent to crash risk problems.