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Financial-judicial specialization and stock price crash risk: Evidence from China

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  • Wang, Kedi
  • Wu, Chen

Abstract

Our paper examines the impact of the improved financial-judicial specialization on Chinese capital market considering the establishment of China’s first financial court, that is, the Shanghai Financial Court, as an exogenous shock. Using a difference-in-differences (DID) estimation, we find that greater financial-judicial specialization is associated with lower risk of stock price crash. Our results also show that this effect is more pronounced for firms with poor internal control, opaque information environment, and weak internal supervision. The mechanism analysis also shows that the improvement of financial-judicial specialization will also lead to act less opportunistically and disclose more bad news. Overall, the results shed light on the important role of financial-judicial specialization in the Chinese capital market.

Suggested Citation

  • Wang, Kedi & Wu, Chen, 2024. "Financial-judicial specialization and stock price crash risk: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000076
    DOI: 10.1016/j.intfin.2024.101941
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    Keywords

    Financial-judicial specialization; Stock price crash risk; Shanghai Financial Court;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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