The Effect of Political Connections on the Relationship between Stock Price Crash Risk and the Quality of Accounting Earnings: Evidence from China

2020 ◽  
Vol 49 (1) ◽  
pp. 1-29 ◽  
Author(s):  
Feng Panpan ◽  
Seong Il Jeon ◽  
Minkyung Park
Keyword(s):  
Stock Price ◽  
Political Connections ◽  
Crash Risk ◽  
Accounting Earnings ◽  
The Relationship

scholarly journals Does D&O insurance matter for stock price crash risk? Evidence from an Asian emerging market

2019 ◽  
Vol 3 (1) ◽  
pp. 34-46
Author(s):  
Ming-Te Lee ◽  
Kai-Ting Nien
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Emerging Market ◽  
Insurance Coverage ◽  
Crash Risk ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Relationship

Purpose The purpose of this paper is to address the opposing views of the relationship between directors’ and officers’ liability insurance (D&O insurance) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach This paper finds an endogenous relationship between D&O insurance and stock price crash risk. Hence, the two-stage least squares regression analysis is used to address the endogeneity issue when the relationship is examined. Moreover, this paper further controls the quality of other corporate governance mechanisms to investigate whether D&O insurance still has an effect on stock price crash risk. Findings The effect of D&O insurance coverage is significantly negatively related to firm-specific stock price crash risk in Taiwan. More importantly, even when the quality of other corporate governance mechanisms is controlled, the negative relationship between D&O insurance coverage and firm-specific stock price crash risk remains significant. The evidence supports that D&O insurance serves as an effective external monitoring mechanism, strengthens corporate governance, and thus reduces stock price crash risk. Originality/value Emerging Asian markets suffer a dearth of research on the relationship of D&O insurance coverage and the firm-specific stock price crash risk. Investigating the relationship in Taiwan, the present study fills the research void. The findings show that D&O insurance plays an important role in reducing stock price crash risk of Taiwanese firms even when other corporate governance mechanisms are in place.

Political connections and stock price crash risk

2018 ◽  
Vol 8 (2) ◽  
pp. 140-157 ◽  
Author(s):  
Guoliu Hu ◽  
Yu Wang
Keyword(s):  
Local Governments ◽  
Stock Price ◽  
Political Connections ◽  
Crash Risk ◽  
Corporate Disclosure ◽  
Senior Executives ◽  
Content Type ◽  
The Impact ◽  
First Time ◽  
The Relationship

Purpose The purpose of this paper is to research the impact of firms’ political connections on the stock price crash risk. Design/methodology/approach Empirical methodology is used in this study. Findings Using a large sample of Chinese firms for the period 2008-2013, the authors find that corporate political connections can reduce the stock price crash risk. When managers are still in politics or firms are in high financial transparency of local governments, the relationship between political connections and the stock price crash risk is weakened. In addition, the authors’ research shows that the corporate political connections influence the stock price crash risk by affecting the speed of confirmation of bad news. Research limitations/implications The findings in this study suggest that political connections will affect corporate disclosure. Practical implications These results can help senior executives and investors make better decisions to prevent the stock price crash risk. Originality/value This paper empirically analyzes the impact of different types of political connections on the stock price crash risk for the first time.

scholarly journals Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto

2019 ◽  
Vol 7 (3) ◽  
pp. 49
Author(s):  
Harymawan ◽  
Lam ◽  
Nasih ◽  
Rumayya
Keyword(s):  
Selection Bias ◽  
Stock Price ◽  
The Self ◽  
Political Connections ◽  
Crash Risk ◽  
Firm Level ◽  
Self Selection ◽  
The Difference ◽  
Firm Structures ◽  
The Relationship

This study examines the relationship between firm-level political connections and stock price crash risk in Indonesia. It employs the difference-in-difference design to deal with the self-selection bias issue regarding the choice of the firms to become a politically connected firm. We use the sudden resignation of the former President of Indonesia, Suharto, to show that politically connected firms are associated with lower stock price crash risk and that the risk for these politically connected firms increased after Suharto resigned. Furthermore, we found evidence that these negative associations are more pronounced in firms with more complex firm structures.

scholarly journals Strategy, practice and quality of sustainability reports on stock price crash risk

2020 ◽  
Vol 9 (3) ◽  
pp. 34-49
Author(s):  
Dwi Ekasari Harmadji ◽  
Bambang Subroto ◽  
Erwin Saraswati ◽  
Yeney W. Prihatiningtias
Keyword(s):  
Capital Market ◽  
Stock Price ◽  
Descriptive Statistics ◽  
Crash Risk ◽  
Archival Data ◽  
Verification Methods ◽  
Sustainability Reports ◽  
The Relationship ◽  
Positive Effect

This study examines the relationship between stock price crash risk (SPCR) or the risk of a stock price collapse with strategy, practice, and quality of sustainability reports. This research uses archival data and verification methods. Data analysis using descriptive statistics, regression, classic assumption, and path analysis. This phenomenon arose due to the large number of SPCRs which resulted in losses for investors in the capital market. Samples were taken based on judgment sampling and found 304 reporting studied during the period from 2010-2017 (8 years). The outcomes of this study are the strategy and practice of standalone sustainability reports have a positive effect on the quality of sustainability reports. The quality of sustainability reports (SRQ) mediates the strategy and practice of standalone sustainability reports against SPCR.

scholarly journals ESG Disclosures and Stock Price Crash Risk

2021 ◽  
Vol 14 (2) ◽  
pp. 70 ◽  
Author(s):  
Rio Murata ◽  
Shigeyuki Hamori
Keyword(s):  
Dynamic Model ◽  
Stock Price ◽  
The United States ◽  
Crash Risk ◽  
Firm Level ◽  
Market Participants ◽  
Major Market ◽  
Market Index ◽  
Index Components ◽  
The Relationship

In this study, we investigate the relationship between environmental, social, and governance (ESG) disclosures and stock price crash risk. A stock price crash is a dreadful event for market participants. Thus, exploring stock price crash determinants is helpful for investment decisions and risk management. In this study, we use samples of major market index components in Europe, the United States, and Japan to perform regression analyses, after controlling for other potential stock price crash determinants. We estimate static two-way fixed-effect models and dynamic GMM models. We find that coefficients of firm-level ESG disclosures are not statistically significant in the static model. ESG disclosure coefficients in the dynamic model are not statistically significant in the U.S. market sample. On the other hand, coefficients of ESG disclosure scores in the dynamic model are statistically significant and negative in the European and Japanese marker sample. Our findings suggest that ESG disclosures lower future stock price crash risk; however, the effect and predictive power of ESG disclosures differ among regions.

scholarly journals Management equity incentives and stock price crash risk: “Golden handcuffs” or “gold watch”

PLoS ONE ◽  
2021 ◽  
Vol 16 (4) ◽  
pp. e0249900
Author(s):  
Xiaohua Zhou ◽  
Jinshi Wan ◽  
Yi Yang ◽  
Xiangyu Gan
Keyword(s):  
Peer Effects ◽  
Stock Price ◽  
Listed Companies ◽  
Mediation Effect ◽  
Crash Risk ◽  
Mediating Effects ◽  
Equity Incentives ◽  
Region 10 ◽  
The Relationship ◽  
A Share

This paper expands the previous research on management equity incentives (MEIs) and stock price crash risk by distinguishing between the "gold watch" region and the "golden handcuff" regions in MEIs. By using an estimation of the gold watch region and the golden handcuff regions based on 6,675 annual observations of China’s A-share listed companies, the stock price crash risk is found to be negatively correlated with MEIs in the golden handcuff regions (0–10%, 30%-100%) and is positively correlated with MEIs in the gold watch region (10%-30%). A further investigation of the mediating effects of peer effects on MEIs and the stock price crash risk reveals that peer effects have a partial mediation effect at the level of peer managers’ shareholding and mediate the relationship between MEIs and the stock price crash risk.

Does negative information in MD&A can reduce stock crash risk?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jianmai Liu
Keyword(s):  
Information Asymmetry ◽  
Information Disclosure ◽  
Stock Price ◽  
Negative Information ◽  
Bad News ◽  
Practical Significance ◽  
Crash Risk ◽  
Content Type ◽  
The Impact

Purpose As an important part of the disclosure of listed companies' annual reports, MD&A will disclose some "bad news" about the company. The purpose of this paper is to study whether such "bad news" can reduce information asymmetry and alleviate the risk of stock price crash remains to be seen. Design/methodology/approach Based on the sample of A-share listed companies from 2007 to 2016, the authors examine whether the negative information in MD&A could reduce stock price crash risk. Findings It is found that the negative information in MD&A does not reduce future crash, which indicates that the negative information in MD&A does not alleviate the information asymmetry. Further, it is also found this is due to the low readability of negative information which leads to the negative information not successfully released into the market timely. Only highly readable negative information can alleviate information asymmetry and suppress crash risk. In addition, the authors also find in the companies with more investor surveys negative tone is negatively correlated with crash risk, which means that investor surveys could help investors interpret the negative information in MD&A and alleviate stock price crash risk. Practical implications The practical significance of this article: this paper suggests that investors should carefully identify the quality of negative information in MD&A and pay attention to other quality characteristics besides credibility. This paper suggests that the regulator should pay attention not only to whether to disclose and the amount of disclosure but also to the quality of information disclosure, such as readability, so as to restrict management's strategic behavior in information disclosure. Originality/value First, different from previous studies on the impact of information disclosure on crash risk, this paper directly explores the impact of information in MD&A on stock price crash risk from the perspective of negative information disclosure that management most want to hide. It supplements the literature on the impact of information disclosure on stock price crash risk. Second, this paper studies the interaction between information tone and readability and its impact on the risk of stock price crash. Some studies believe that the credibility of negative news is higher and investors' reaction may be stronger. However, this paper finds that the disclosure of negative information may not be absorbed by the market because of the low readability. Third, this paper finds that investor surveys can help information users to interpret negative information and alleviate the risk of stock price crash, which shows that information disclosure of different channels will complement each other and improve information efficiency. Therefore, it advocates different information disclosure channels which has important practical significance for improving market pricing efficiency and reducing investment decision-making risk.

China's Closed Pyramidal Managerial Labor Market and the Stock Price Crash Risk

2017 ◽  
Vol 93 (3) ◽  
pp. 105-131 ◽  
Author(s):  
Donghua Chen ◽  
Jeong-Bon Kim ◽  
Oliver Zhen Li ◽  
Shangkun Liang
Keyword(s):  
Labor Market ◽  
Stock Price ◽  
Negative Association ◽  
Political Connections ◽  
Crash Risk ◽  
The Political ◽  
Market Forces ◽  
Risk Averse ◽  
Foreign Investors ◽  
Managerial Labor Market

ABSTRACT Managers of China's state-owned firms work in a closed pyramidal managerial labor market. They enjoy non-transferable benefits if they choose to stay within this system. The higher up are they in this labor market hierarchy (their political ranks), the fewer are their outside employment opportunities. Due to career and wealth concerns, they are cautious and risk-averse when managing firms. We examine the effect of managers' political ranks on firms' stock price crash risk and find a negative association. This association mainly exists in firms with younger managers and managers with shorter tenure. Further, this effect is only significant in regions with weak market forces, in firms without foreign investors, without political connections, and during periods with no local government leaders' or managers' political promotions. We conclude that the political ranking system reduces the stock price crash risk. JEL Classifications: G30; J33.

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