Common ownership and stock price crash risk: Evidence from China

Ping Jiang, Yunbiao Ma and Beibei Shi

Australian Economic Papers, 2022, vol. 61, issue 4, 876-912

Abstract: This study examines whether common ownership affects stock price crash risk (SPCR). Using 3,159 companies listed in China between 2006 and 2019, this paper finds that companies with common ownership are associated with lower SPCR. This finding can be explained by the monitoring effect of common ownership which holds that common ownership can curb the hoarding of bad news by managers and thereby reduces SPCR. We further show that the effect is more evident when common owners hold a relatively larger number of same‐industry firms, when common owners hold more shares, and for state‐owned‐enterprises. Moreover, this paper also demonstrates how common ownership facilitates effective monitoring and finds that common ownership reduces earnings management and increases accounting conservatism in firms. Our evidence suggests that common ownership serves as an effective form of monitoring by constraining managers' opportunistic behaviour, thereby reducing SPCR.

Date: 2022
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