Ultimate government control and stock price crash risk: Evidence from China |
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| Institution: | 1. Institute of Economic Research, Hitotsubashi University, Tokyo, Japan;2. Faculty of Economics, Hosei University, Tokyo, Japan;3. Institute of Economic Research, Kyoto University, Kyoto, Japan;1. School of Business, Zhejiang University City College, Hangzhou, China;2. School of Management, Zhejiang University, Hangzhou, China;3. China Academy of Financial Research, Zhejiang University of Finance & Economics, Hangzhou, China;1. School of Economics and Management, Shanxi University, 92 Wucheng Road, Taiyuan, Shanxi 030006, China;2. Asper School of Business, University of Manitoba, Winnipeg, Manitoba, Canada;1. College of Business Administration, Capital University of Economics and Business, Zhangjialukou Road No.121, Fengtai District, Beijing, China;2. Department of Business and Information Technology, Missouri University of Science and Technology, 101 Fulton Hall, 301 W. 14th Street, 65409 Rolla, MO, USA;3. Nankai Business School, Nankai University, 94 Weijin Road, Tianjin, China;1. Hamburg University, Department of Economics, Germany;2. Tallinn University of Technology, Department of Economics and Finance, Estonia;3. Halle Institute for Economic Research, Germany;1. Department of Accounting, Faculty of Economics and Business, Universitas Gadjah Mada (Center for Management Accounting Studies and Micro, Small, and Medium Enterprises), Jalan Sosio Humaniora 1, Bulaksumur, Yogyakarta 55281, Indonesia;2. Macquarie Business School, Macquarie University, 4 Eastern Road, Macquarie Park, NSW 2109, Australia |
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| Abstract: | Using data of Chinese firms over 2004–2018, we find that firms controlled by government entities, particularly central government entities, are less prone to stock price crashes, as compared with privately controlled firms. The effect is robust to alternative estimation approaches and moderated by the Split-share Structure Reform and the anti-corruption campaign. The results attest to the incentive alignment view that controlling and minority shareholders align their interests and stock prices perform well. Further, we find that government-controlled firms exhibit less financial opacity, undertake less risky investments, and appoint myopic CEOs, through which stock price crash risk is diminished. |
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