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Institutional investor networks and crash risk: Evidence from China

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  • Li, Fangzhou
  • Jiang, Yuxiang

Abstract

We examine the impact of institutional investor networks on stock price crash risk in China. Using data from 2007 to 2019 on Chinese institutional investors, we document that well-connected institutions (i.e., institutions in the institutional investor network) from more central network positions can increase stock price crash risk more than other investors. The documented effect is robust to endogeneity concerns. We also find that the role of institutional investor networks in increasing crash risks is partially attributed to reduced accounting conservatism and investor herding. Our article sheds light on the effects of institutional investor networks on stock price crash risk.

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  • Li, Fangzhou & Jiang, Yuxiang, 2022. "Institutional investor networks and crash risk: Evidence from China," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s154461232100564x
    DOI: 10.1016/j.frl.2021.102627
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    2. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    3. Wang, Junkai & Qi, Baolei & Nie, Yaoxiang & Hussain, Muhammad Jameel, 2023. "Will the investment environment in the region where the company is located affect its financial risk? Evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Institutional investor networks; Crash risk; Mutual funds; China;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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