Social trust and stock price crash risk: Evidence from China

Cao, Chun-Li; Xia, Changyuan; Chan, Kam C.

doi:10.1016/j.iref.2016.09.003

Cited by 124 publications

(73 citation statements)

References 48 publications

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“…The mean values of governance variables (i.e., IND T , DUALITY T , and BOARD T ) are closest to those reported in Sun et al, (). Moreover, the mean values of STATE T , RET T , SIGMA T , DTURN T , ABACC T , MTB T , ROA T , LEV T , and SIZE T are consistent with prior studies in the context of China (Cao, Xia, & Chan, ; Li & Cai, ; Li & Chan, ; Li, Wang, & Wang, ; Sun, Yuan, Cao, & Wang, ).…”

Section: Resultssupporting

confidence: 88%

“…Panel B of Table reports summary statistics. The mean values for future crash risk measures, NSKEW T+ 1 and DUVOL T+ 1 , are comparable with those reported in prior studies on China (Cao, Xia, & Chan, ; Li & Cai, ; Sun, Yuan, Cao, & Wang, ). The mean value of HIERARCHY T (a board's informal hierarchy) is comparable with that reported in He and Huang ().…”

Section: Resultssupporting

confidence: 86%

“…Table 1 reports summary statistics. The mean values for future crash risk measures, NSKEW T+1 and DUVOL T+1 , are comparable with those reported in prior studies on China (Cao, Xia, & Chan, 2016;Li & Cai, 2016;Sun, Yuan, Cao, & Wang, 2017 Sun et al, (2017). Moreover, the mean values of STATE T , RET T , SIGMA T , DTURN T , ABACC T , MTB T , ROA T , LEV T , and SIZE T are consistent with prior studies in the context of China (Cao, Xia, & Chan, 2016;Li & Cai, 2016;Li & Chan, 2016;Li, Wang, & Wang, 2017;Sun, Yuan, Cao, & Wang, 2017).…”

Section: Descriptive Statistics and Correlation Matrixsupporting

confidence: 86%

“…We also included industry (Fama–French 48‐industry classification) and year dummies in all models. Following prior studies on Chinese firms (Cao, Xia, & Chan, ; Li & Cai, ; Sun, Yuan, Cao, & Wang, ), we winsorized continuous variables at the 1% level at both tails.…”

Section: Methodsmentioning

confidence: 99%

See 3 more Smart Citations

Board informal hierarchy and stock price crash risk: Theory and evidence from China

Jebran

Chen

Zhu

2019

Corporate Governance

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Research Question/Issue: This study examines how the informal hierarchy among directors of a firm influences the risk of stock price crash. We theorize that a clear informal hierarchy among directors increases managerial coordination of activities to hide bad news, which increases the risk of future stock price crash. Research Findings/Insights: Consistent with our theoretical predictions, our findings show that the informal hierarchy among directors, measured based on the number of board appointments they have, is positively associated with the risk of future stock price crash. This association is weaker for firms with larger boards but stronger when the CEO's status is higher than that of the majority of the directors on the board. We also find evidence that information hierarchy increases the degree to which managers hide bad news. Theoretical/Academic Implications: This study advances our understanding by showing that an informal hierarchy that tacitly forms among directors on a board can significantly guide boardroom interactions. Specifically, the findings suggest that a clear informal hierarchy among directors enhances their coordination to hide bad news and thereby increases stock price crash risk. Furthermore, the results provide evidence that CEO's status and board size are important factors influencing the functioning of board informal hierarchy. Practitioner/Policy Implications: The results have important implications for researchers and policymakers. The findings show that the informal hierarchy among directors can shape managerial behavior and guide boardroom interactions. The results also suggest that improving formal governance mechanisms can enhance boardroom interactions by moderating the effects of informal hierarchy in the context of China.

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Section: Resultssupporting

confidence: 88%

Section: Resultssupporting

confidence: 86%

Section: Descriptive Statistics and Correlation Matrixsupporting

confidence: 86%

Section: Methodsmentioning

confidence: 99%

See 2 more Smart Citations

Board informal hierarchy and stock price crash risk: Theory and evidence from China

Jebran

Chen

Zhu

2019

Corporate Governance

View full text Add to dashboard Cite

show abstract

“…Kim et al., 2011b), corporate social responsibility (Y. Kim, Li, & Li, ), excess perk (Xu, Li, Yuan, & Chan, ) and takeover pressures (Bhargava, Faircloth, & Zeng, ) are positively related to the probability of stock price crashes in the future. The external monitoring by dedicated institutional investors (Callen & Fang, ), social trust (Cao, Xia, & Chan, ) and security exchange commission (SEC) (Kubick & Lockhart, ) alleviates bad news hoarding and results in a lower stock price crash risk in the future. Moreover, given that some informed market traders may have already acquired negative news about a firm, Hong and Stein () theoretically show that short‐sale constraints and heterogeneous beliefs among traders create obstacles to capitalize negative news into the equity market and lead to a higher negative skewness of future stock return distribution.…”

Section: Introductionmentioning

confidence: 99%

Equity index futures trading and stock price crash risk: Evidence from Chinese markets

Liu

Zhong

2018

Journal of Futures Markets

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Equity index futures are often blamed for exacerbating equity price crash risk although there is little empirical evidence to support the accusation in the literature. We find that Chinese equity index futures trading significantly reduces stock price crash risk. This negative relationship is strengthened by institutional ownership and weakened by a controlling shareholders’ incentive to elude external monitoring, such as the divergence of control and cash‐flow rights of dominant shareholders, the block holdings of the largest shareholders, and state ownership. Our findings reveal the positive externality of financial derivative innovation on equity market stability.

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Unmasking market turmoil by decoding stock market dynamics post‐fraud allegations: Evidence from Adani‐Hindenburg case

Sapra,

Kakran,

Sidhu

et al. 2024

J Corp Accounting Finance

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The article investigates how the devastating repercussions of fraud allegations, as outlined in the Hindenburg report, are actively and critically affecting the stock prices of the Adani Group. This investigation, which explores the foundation of the accused companies' financial health and market trust, is crucial. These ramifications go far beyond Adani Group and are highly relevant to potential investors globally, highlighting the urgent need for a thorough comprehension of these dynamics in the context of the global market environment. The journey from stock market crash to market correction is analyzed using the theoretical lens of Risk Aversion theory. At the same time, the Efficient Market Hypothesis (EMH) assumptions are being tested. The study employs a long‐term event study approach to analyze the stock price impact of the Hindenburg report using the Cumulative Abnormal Returns (CAR) methodology. For analysis, a sample of six Adani group companies and relevant stakeholders like creditors, LIC, immediate counterparts of each company, and NIFTY bank indices are considered. The study finds that the stock prices of four out of six Adani Group companies declined significantly after the Hindenburg report, defying the assumptions of the EMH. Risk‐seeking investors' regulatory assurance and investment may have helped in a market correction. The associated banks (lenders to Adani) and Banking indices depicted a price decline on the second and third days, which reversed on the fourth day, indicating a diminished spillover effect. Moreover, no competitor besides Tata Power saw abnormally large gains. This study analyses the event from the lens of Risk aversion and tests the assumption of EMH. The study concludes that these findings have practical implications for investors (risk‐averse and risk‐seeking), policymakers, and researchers.

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Social trust and stock price crash risk: Evidence from China

Cited by 124 publications

References 48 publications

Board informal hierarchy and stock price crash risk: Theory and evidence from China

Board informal hierarchy and stock price crash risk: Theory and evidence from China

Equity index futures trading and stock price crash risk: Evidence from Chinese markets

Unmasking market turmoil by decoding stock market dynamics post‐fraud allegations: Evidence from Adani‐Hindenburg case

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