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Organization capital and stock price crash risk

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  • Chen, Leqin
  • Lei, Adrian C.H.
  • Song, Chen

Abstract

This study explores the relationship between organization capital and stock price crash risk. Using a sample of publicly traded firms in China between 2010 and 2022, we find that firms with a high level of organization capital have higher future stock price crash risk. This positive relationship is more prominent for firms with low financing constraints, high profit retention ratios, and high levels of risk-taking behavior than for other firms. We also examine the potential mechanisms that moderate this positive relationship. Our results indicate that the positive association is less apparent among non-state-owned enterprises, firms in intensely religious environments, firms in which management holds shares, and firms with strong monitoring vigilance. Further analysis reveals that firms can reduce this positive association by increasing the frequency with which independent directors meet and increasing the diversity of the backgrounds of independent directors. Our findings are robust to various robustness tests, such as the instrumental variable approach, entropy balancing analysis, and alternative measures of organization capital and stock price crash risk.

Suggested Citation

  • Chen, Leqin & Lei, Adrian C.H. & Song, Chen, 2024. "Organization capital and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003391
    DOI: 10.1016/j.pacfin.2024.102587
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    More about this item

    Keywords

    Organization capital; Corporate governance; Stock price crash risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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