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The geographic distance of independent directors and stock price crash risk: Evidence from China

Author

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  • Su, Kun
  • Yang, Ruohan
  • Cui, Qian
  • Wang, Tianfu

Abstract

Geographical economics has received continuous attention in recent years, but the role of the geographic distance of independent directors in stock price crash risk remains unexplored. We examine the governance effect of independent directors from a geographic perspective. Specifically, the Haversine formula is used to calculate the geographic distance between independent directors and the enterprise. Using a detailed sample of the Chinese market from 2010 to 2018, we find that short geographic distances of independent directors can facilitate the monitoring effect of independent directors and thus curb stock price crash risk. This finding holds after a series of robustness tests, including the differences-in-differences (DID) method, propensity score matching (PSM), instrumental variable method, alternative measurements, and an extended observation window. Further analyses show that the curbing effect is more pronounced in firms with non-CEO duality, low managerial ownership, a good social trust environment, and independent directors with professional backgrounds. Finally, independent directors close to firms can reduce stock price crash risk by increasing accounting information quality. The results have important implications for researchers and policymakers.

Suggested Citation

  • Su, Kun & Yang, Ruohan & Cui, Qian & Wang, Tianfu, 2024. "The geographic distance of independent directors and stock price crash risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000631
    DOI: 10.1016/j.ribaf.2024.102270
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    Keywords

    Geographic distance; Independent director; Stock price crash risk; Social trust;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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