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Co-opted directors, gender diversity, and crash risk: evidence from China

Author

Listed:
  • Erin H. Kao

    (Tunghai University)

  • Ho-Chuan Huang

    (Tamkang University)

  • Hung-Gay Fung

    (University of Missouri St. Louis)

  • Xiaojian Liu

    (Hunan University)

Abstract

This study examines how the composition of the board of directors at Chinese firms affects crash risk. The results indicate that co-opted directors (i.e., directors appointed after the CEO assumed office) have a positive and significant effect on crash risk; the positive relation between board directors and crash risk is primarily driven by co-opted male directors, implying a gender difference on crash risk. Non-co-opted independent directors mitigate crash risk, but the negative relation between gender and crash risk is much stronger for female directors than for male directors. The results indicate that co-option/non-co-opted independence along with gender diversity on the board plays an important role in shaping crash risk behaviors. The director-crash risk linkage disappears at state-owned enterprises, suggesting that ownership structure affects board behaviors and board members play the role of rubber-stamp. Finally, the relation between gender and crash risk is more pronounced at crash-risk prone firms with high earnings management and high financial leverage.

Suggested Citation

  • Erin H. Kao & Ho-Chuan Huang & Hung-Gay Fung & Xiaojian Liu, 2020. "Co-opted directors, gender diversity, and crash risk: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 461-500, August.
    • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:2:d:10.1007_s11156-019-00850-3
    DOI: 10.1007/s11156-019-00850-3
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    Cited by:

    1. Bhuiyan, Md. Borhan Uddin & Sangchan, Pinprapa & Costa, Mabel D', 2022. "Do Co-opted boards affect the cost of equity capital?," Finance Research Letters, Elsevier, vol. 46(PB).
    2. Guanming He & Helen Mengbing Ren & Richard Taffler, 2021. "Do corporate insiders trade on future stock price crash risk?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1561-1591, May.
    3. Harris, Oneil & Nguyen, Trung, 2022. "Director co-option and future market share growth," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    4. Alaa Mansour Zalata & Collins G. Ntim & Mostafa Hussien Alsohagy & John Malagila, 2022. "Gender diversity and earnings management: the case of female directors with financial background," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 101-136, January.
    5. Asad, Muhammad & Akbar, Saeed & Li, Jing & Shah, Syed Zulfiqar Ali, 2023. "Board diversity and corporate propensity to R&D spending," International Review of Financial Analysis, Elsevier, vol. 89(C).
    6. Khalil Jebran & Shihua Chen & Ruibin Zhang, 2022. "Board social capital and stock price crash risk," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 499-540, February.
    7. Ernest Ezeani & Rami Salem & Frank Kwabi & Khalid Boutaine & Bilal & Bushra Komal, 2022. "Board monitoring and capital structure dynamics: evidence from bank-based economies," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 473-498, February.

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    More about this item

    Keywords

    Co-option; Crash risk; Gender diversity; Independent director; State-owned enterprises;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • 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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