The helping hand: stock price crash risk and government subsidy

This study examines a channel of the government’s helping hand, the government subsidies for firms exposed to stock price crash risk. Using data on China’s A-share non-financial listed companies from 2008 to 2016, we find that higher crash risk exposure induces more government subsidy. Compared with non-state-controlled companies, state-controlled companies receive government subsidies in a more timely manner. Further study finds that companies with closer relationships with the government, located in regions with a more cordial politics-business environment, and are pivotal to the regional economy, receive more government subsidies facing stock price risk exposure. The study also finds that companies mainly receive economic development-oriented government subsidies; and the government subsidy, in turn, helps to mitigate the negative impact of the stock price risk exposure on their borrowing capacity. This paper enriches the studies on the economic consequences of crash risk and expands the research on interactions between the government and the market.