Major government customers and stock price crash risk |
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| Institution: | 1. School of Accountancy, Central University of Finance and Economics, Beijing 100081, China;2. SKEMA Business School, 99 Ren’ai Road, Suzhou 215123, China;1. School of Business, University of Connecticut, 2100 Hillside Rd., Unit 1041A, Storrs, CT 06269, United States;2. College of Business, Colorado State University, 501 W. Laurel St., Fort Collins, CO 80523, United States;1. Oregon State University, United States;2. Purdue University, United States;1. Telfer School of Management, University of Ottawa, 55 Laurier Avenue East, Ottawa, ON K1N 6N5, Canada;2. Smith School of Business, Queen’s University, 143 Union Street West, Kingston, ON K7L 3N6, Canada;3. IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France;1. University of Colorado Denver, 1475 Lawrence Street, Denver, CO 80202, USA;2. Bentley University, 175 Forest Street, Waltham, MA 02452, USA;3. Northeastern University, 404 Hayden Hall, 360 Huntington Avenue, Boston, MA 02115, USA;1. Peking University, HSBC Business School, China;2. BI Norwegian Business School, Norway;3. Umeå School of Business, Economics and Statistics, Sweden |
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| Abstract: | This paper studies whether government’s participation in product market, as a customer, affects supplier firms’ stock price crash risk. Using a sample of U.S. firms from 1980 to 2015, we find robust evidence that the presence of major government customers is associated with a lower level of stock price crash risk for supplier firms. Further, we show that government customers can lower suppliers’ crash risk by imposing monitoring activities on suppliers and/or reducing suppliers’ operational risk, leading to a reduction in supplier managers’ bad news hoarding behavior. Overall, our results indicate that government spending, as an important public policy, can significantly affect shareholders’ value by mitigating stock price crash risk. |
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| Keywords: | Government customers Stock price crash risk Agency conflicts Supplier-customer relationships Government spending G14 G30 G32 |
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