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Corporate governance and stock price crash risk: Evidence from Taiwan

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  • Sheng‐Fu Wu
  • Chung‐Yi Fang
  • Wei Chen

Abstract

Managers are likely to withhold negative news to protect their own interests. When they can no longer withhold such news, extreme negative returns and a stock price crash (SPC) follow. This study explores whether a favorable corporate governance (CG) mechanism helps reduce SPC risk. The findings reveal that CG affects SPC risk. Moreover, the effects of institutional ownership, board size, and disclosure violation frequency are particularly significant in family‐owned businesses. We also examine the effectiveness of CG evaluation (CGE) in Taiwan and discover that companies with high rankings are substantially less likely to encounter an SPC. This study verifies that CGE can be considered an indicator of SPC risk.

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  • Sheng‐Fu Wu & Chung‐Yi Fang & Wei Chen, 2020. "Corporate governance and stock price crash risk: Evidence from Taiwan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1312-1326, October.
    • Handle: RePEc:wly:mgtdec:v:41:y:2020:i:7:p:1312-1326
    DOI: 10.1002/mde.3177
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