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Political connections and stock price crash risk

Author

Listed:
  • Guoliu Hu
  • Yu Wang

Abstract

Purpose - The purpose of this paper is to research the impact of firms’ political connections on the stock price crash risk. Design/methodology/approach - Empirical methodology is used in this study. Findings - Using a large sample of Chinese firms for the period 2008-2013, the authors find that corporate political connections can reduce the stock price crash risk. When managers are still in politics or firms are in high financial transparency of local governments, the relationship between political connections and the stock price crash risk is weakened. In addition, the authors’ research shows that the corporate political connections influence the stock price crash risk by affecting the speed of confirmation of bad news. Research limitations/implications - The findings in this study suggest that political connections will affect corporate disclosure. Practical implications - These results can help senior executives and investors make better decisions to prevent the stock price crash risk. Originality/value - This paper empirically analyzes the impact of different types of political connections on the stock price crash risk for the first time.

Suggested Citation

  • Guoliu Hu & Yu Wang, 2018. "Political connections and stock price crash risk," China Finance Review International, Emerald Group Publishing Limited, vol. 8(2), pages 140-157, April.
    • Handle: RePEc:eme:cfripp:cfri-06-2017-0079
    DOI: 10.1108/CFRI-06-2017-0079
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    Citations

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    Cited by:

    1. Zijia Du & Alan Guoming Huang & Russ Wermers & Wenfeng Wu, 2022. "Language and Domain Specificity: A Chinese Financial Sentiment Dictionary [The effects of analyst-country institutions on biased research: Evidence from target prices]," Review of Finance, European Finance Association, vol. 26(3), pages 673-719.
    2. Yang, Chang & Chen, Xin & Chen, Xian, 2021. "Vertical interlock and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    3. Iman Harymawan & Brian Lam & Mohammad Nasih & Rumayya Rumayya, 2019. "Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto," IJFS, MDPI, vol. 7(3), pages 1-16, September.
    4. Lien‐Wen Liang & Tsui‐Jung Lin & Hui‐Fun Yu & Ya‐Wen Li, 2022. "The impact of political connection and board diversity on company performance: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2347-2357, September.
    5. Hu, Gang & Liu, Yiye & Wang, Jacqueline Wenjie & Zhou, Gaoguang & Zhu, Xindong, 2022. "Insider ownership and stock price crash risk around the globe," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    6. Sun, Sophia Li & Habib, Ahsan & Huang, Hedy Jiaying, 2019. "Tournament incentives and stock price crash risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 93-117.
    7. Yang, Zhiqing & Liu, Xiaowen, 2022. "The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry," Finance Research Letters, Elsevier, vol. 50(C).
    8. Lv, Dayong & Wu, Wenfeng, 2019. "Margin-trading volatility and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 179-196.
    9. Hui-Fun Yu & Tsui-Jung Lin & Hai-Yen Chang & Yu-Huai Wang, 2020. "The Impact of Political Connection and Information Asymmetry on Investment Efficiency: Evidence from China," Sustainability, MDPI, vol. 12(14), pages 1-15, July.

    More about this item

    Keywords

    Political connections; Accounting conservatism; Fiscal transparency; The stock price crash risk; G32; G38;
    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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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