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Controlling shareholder’s escape threat: Foreign residency rights and stock price crash risk

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  • Cao, Feng
  • Li, Haitong
  • Zhang, Xueyan
  • Zhang, Zixi

Abstract

This paper examines how foreign residency rights (FRRs) of controlling shareholders affect stock price crash risk in emerging financial markets. Using a unique sample of Chinese privately-owned firms, we find that FRRs significantly increase crash risk. This effect is stronger for firms that are less conservative in accounting, more fraudulent, and more litigious. Furthermore, we find that the FRRs-crash risk effect is more pronounced when controlling shareholders face original sin suspicion, obtain FRRs directly or indirectly control the listed firm. We also identify several mitigating factors, and our findings suggest that more independent directors, stronger audit supervision, and better legal system can reduce the positive effect of FRRs on crash risk.

Suggested Citation

  • Cao, Feng & Li, Haitong & Zhang, Xueyan & Zhang, Zixi, 2025. "Controlling shareholder’s escape threat: Foreign residency rights and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:riibaf:v:74:y:2025:i:c:s0275531924005002
    DOI: 10.1016/j.ribaf.2024.102707
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    More about this item

    Keywords

    Foreign residency rights; Stock price crash risk; Controlling shareholder; Financial risk;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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