Abstract
This paper examines the impact of corporate pyramids on the stock price crash risk of listed firms in China. Our results show that, first, the pyramidal layer of state-owned enterprises (SOEs) can reduce stock price crash risk through the three channels of improving financial statement transparency, increasing accounting conservatism, and decreasing overinvestment. Second, the greater the related party transactions, the weaker the negative relation between the pyramidal layer and crash risk, while this negative relation is strengthened by Hong Kong cross-listing. Further analysis shows that the corporate pyramidal layer of SOEs can also decrease stock price synchronicity. For non-state-owned enterprises (NSOEs), we find that there is an inverse U-shaped relationship between the corporate pyramidal layer, crash risk, and stock price synchronicity. These findings have important policy implications in promoting the sound and stable development of the capital market in China.
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© The Author(s) 2016. This article is published with open access by The Hong Kong Polytechnic University
CLC codes: F276.6, F830.91
* We thank Qing Yang and Chao Chen for their helpful suggestions at the 2014 CICF and the 2015 Joint CAFR/JAAF conferences. This study is supported by the National Natural Science Foundation of China (Project Nos. 71622010 and 71503283), the Outstanding Youth Talent Support Program of the Organization Department of the CPC Central Committee, the Fok Ying Tung Education Foundation (Grant No. 141080), the Humanities and Social Science Research Project of the Ministry of Education in China (Project No. 14YJC630069), the Social Science Research Project of Beijing (Project No. 15JGC173), the Program for Innovation Research in the Central University of Finance and Economics, Young Elite Teacher Project of Central University of Finance and Economics, and the Zhongcai-Pengyuan Local Finance Investment and Funding Research Institute. We would like to thank the editors and two anonymous reviewers for their helpful comments. All errors are our own.
1 Xiaorong Li, PhD, Associate Professor, School of Public Finance and Taxation, Central University of Finance and Economics; e-mail: lixiaorongchina@163.com. Nianhang Xu, PhD, Professor, School of Business, Renmin University of China; e-mail: nhxu@ruc.edu.cn. Qiao Liu, PhD, Professor, Guanghua School of Management, Peking University; e-mail: qiao_liu@gsm.pku.edu.cn. Wei Luo, PhD, Associate Professor, Guanghua School of Management, Peking University; e-mail: luowei@gsm.pku.edu.cn.
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Li, X., Xu, N., Liu, Q. et al. Corporate Pyramids and Stock Price Crash Risk: Evidence from China. China Account Financ Rev 18, 11 (2016). https://doi.org/10.7603/s40570-016-0011-8
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DOI: https://doi.org/10.7603/s40570-016-0011-8