Shareholder Networks and Market Collapse Risk

This paper examines whether shareholder co-ownership networks, formed when listed firms share common top circulating shareholders, increase stock price crash risk. Existing crash-risk research mainly focuses on firm fundamentals and information opacity, while the governance and risk implications of cross-firm common ownership remain less studied, particularly in emerging markets. Using quarterly data for Chinese A-share firms from 2002Q1 to 2024Q4 and top ten circulating shareholder records, this paper constructs a common-ownership network and measures firms\' network positions using degree, closeness, and betweenness centrality. The empirical analysis relies on OLS two-way fixed-effects panel regressions with firm and quarter fixed effects and firm-clustered robust standard errors, and dynamic robustness tests are conducted using two-step System GMM to address persistence and endogeneity. Crash risk is measured by NCSKEW and DUVOL based on firm-specific idiosyncratic returns. The results show that greater network centrality predicts higher subsequent crash risk. The association is stronger when common owners are financial institutions or influential blockholders and weaker among state-owned enterprises and firms with stronger governance, including non-dual leadership and greater board independence. Mechanism evidence indicates that central firms exhibit more related-party transactions, higher goodwill, and lower transparency, consistent with tunneling incentives and bad-news hoarding that amplify downside tail risk. These findings suggest that regulators and exchanges can strengthen market stability by incorporating network-based indicators into surveillance and by tightening disclosure and governance requirements for highly central firms.