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Ultimate government control and stock price crash risk: Evidence from China

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  • Sun, Lingxia

Abstract

Using data of Chinese firms over 2004–2018, we find that firms controlled by government entities, particularly central government entities, are less prone to stock price crashes, as compared with privately controlled firms. The effect is robust to alternative estimation approaches and moderated by the Split-share Structure Reform and the anti-corruption campaign. The results attest to the incentive alignment view that controlling and minority shareholders align their interests and stock prices perform well. Further, we find that government-controlled firms exhibit less financial opacity, undertake less risky investments, and appoint myopic CEOs, through which stock price crash risk is diminished.

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  • Sun, Lingxia, 2023. "Ultimate government control and stock price crash risk: Evidence from China," Emerging Markets Review, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ememar:v:55:y:2023:i:c:s1566014122000875
    DOI: 10.1016/j.ememar.2022.100970
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    Keywords

    Ultimate government control; Stock price crash risk; Entrenchment effect; Incentive alignment effect; Financial opacity; CEO myopia;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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