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Strengthened board monitoring from parent company and stock price crash risk of subsidiary firms

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  • Cai, Guilong
  • Xu, Yue
  • Yu, Degan
  • Zhang, Junsheng
  • Zheng, Guojiang

Abstract

This article examines whether and how stronger board monitoring in a parent company influences the stock price crash risk of affiliated subsidiary firms. Using a quasi-natural experiment in China, we empirically document that enhanced board monitoring at the parent company helps reduce crash risk in its subsidiary firms. Three channels of this impact are identified: (i) better corporate governance in the parent company can prevent it from tunneling wealth from the subsidiary firm, (ii) better corporate governance in the parent company helps it better monitor the subsidiary firm, and (iii) better corporate governance in the parent company can spill over to the subsidiary firm and thus constrain managers in the subsidiary firm from misconduct in dealing with negative information.

Suggested Citation

  • Cai, Guilong & Xu, Yue & Yu, Degan & Zhang, Junsheng & Zheng, Guojiang, 2019. "Strengthened board monitoring from parent company and stock price crash risk of subsidiary firms," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 352-368.
    • Handle: RePEc:eee:pacfin:v:56:y:2019:i:c:p:352-368
    DOI: 10.1016/j.pacfin.2019.06.009
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    References listed on IDEAS

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    Cited by:

    1. Huang, Hua & Tao, Yunqing & Wang, Xueping & Feng, Chen & Ye, Yongwei, 2023. "Do board reforms in parent firms boost subsidiaries’ innovation?," Economic Modelling, Elsevier, vol. 125(C).
    2. Haiyuan Yin & Baifan Chen & Xiaoxiao Wang, 2022. "Supervisory capability of supervisor board, incentives to supervisor board, and stock price crash risk," Bulletin of Economic Research, Wiley Blackwell, vol. 74(2), pages 622-649, April.
    3. Irfan Safdar & Michael Neel & Babatunde Odusami, 2022. "Accounting information and left-tail risk," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1709-1740, May.
    4. Zeyu Xie & Mian Yang & Fei Xu, 2023. "Carbon emission trading system and stock price crash risk of heavily polluting listed companies in China: based on analyst coverage mechanism," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-30, December.
    5. Ziqin Yu & Xiang Xiao, 2022. "Innovation information disclosure and stock price crash risk‐based supervision and insurance effect path analysis," Australian Economic Papers, Wiley Blackwell, vol. 61(3), pages 534-590, September.

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    More about this item

    Keywords

    Stock price crash risk; Board reform; Central state-owned enterprise (CSOE); Business group;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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