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Fund style drift and stock price crash risk – analysis of the mediating effect based on corporate financial risk

Author

Listed:
  • Yanlin Sun
  • Siyu Liu
  • Shoudong Chen

Abstract

Purpose - This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the interests of minority investors. Design/methodology/approach - This paper takes all the non-financial companies on the Chinese Growth Enterprise Market from 2011 to 2020 as study object and selects securities investment funds of their top ten circulation stocks to study the relationship between fund style drift and stock price crash risk. Findings - Fund style drift is likely to add stock price crash risk. Financial risk is positively correlated with stock price crash risk. Fund style drift affects stock price crash risk via the mediating effect of financial risk, and fund style drift and financial risk have a marked impact on the stock price crash risk of non-state enterprises, yet a non-significant impact on that of state-owned enterprises. Originality/value - This paper links fund style drift with stock price crash risk in an exploratory manner and enriches the study perspectives of relationship between institutional investors’ behaviors and stock price crash risk, thus enjoying certain academic value. On the one hand, it furnishes a new approach to the academic frontier issue concerning financial risk and stock price crash risk, and proves that financial risk is positively correlated with stock price crash risk. On the other hand, it regards financial risk as a mediating variable of fund style drift for stock price crash risk and further explores different influencing mechanism of institutional investors’ behaviors.

Suggested Citation

  • Yanlin Sun & Siyu Liu & Shoudong Chen, 2022. "Fund style drift and stock price crash risk – analysis of the mediating effect based on corporate financial risk," China Finance Review International, Emerald Group Publishing Limited, vol. 13(2), pages 183-206, June.
    • Handle: RePEc:eme:cfripp:cfri-11-2021-0222
    DOI: 10.1108/CFRI-11-2021-0222
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    More about this item

    Keywords

    Fund style drift; Stock price crash risk; Financial risk; Mediating effect; F830.9 A;
    All these keywords.

    JEL classification:

    • A - General Economics and Teaching

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