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Political connections and stock price crash risk: Evidence from China

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  • Luo, Jin-hui
  • Gong, Manning
  • Lin, Yilong
  • Fang, Qifeng

Abstract

We examine how political connections may influence a firm’s crash risk in China. We find that politically connected firms have lower crash risk than their counterparts. Moreover, the effect of political connections varies according to their strength and types.

Suggested Citation

  • Luo, Jin-hui & Gong, Manning & Lin, Yilong & Fang, Qifeng, 2016. "Political connections and stock price crash risk: Evidence from China," Economics Letters, Elsevier, vol. 147(C), pages 90-92.
  • Handle: RePEc:eee:ecolet:v:147:y:2016:i:c:p:90-92
    DOI: 10.1016/j.econlet.2016.08.024
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    References listed on IDEAS

    as
    1. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    2. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    3. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "CFOs versus CEOs: Equity incentives and crashes," Journal of Financial Economics, Elsevier, vol. 101(3), pages 713-730, September.
    4. Joseph D. Piotroski & T. J. Wong & Tianyu Zhang, 2015. "Political Incentives to Suppress Negative Information: Evidence from Chinese Listed Firms," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 405-459, May.
    5. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2008. "Political connections of newly privatized firms," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 654-673, December.
    6. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    7. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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    More about this item

    Keywords

    China; Information environment; Political connections; Stock price crash risk;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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