Excess perks and stock price crash risk: Evidence from China

Nianhang Xu, Xiaorong Li, Qingbo Yuan and Kam C. Chan

Journal of Corporate Finance, 2014, vol. 25, issue C, 419-434

Abstract: We investigate the impact of excess perk consumption on crash risk in state-owned enterprises in China. To enjoy excess perks, executives in state-owned enterprises have an incentive to withhold bad news for extended periods, leading to higher future stock price crash risk. Consistent with this assertion, we find a positive correlation between excess perks and crash risk. The findings are robust to the inclusion of other determinants of crash risk identified in the literature, such as earnings management, conditional conservatism, and firm-level corporate governance mechanisms. The results still hold after accounting for possible endogeneity issues using a two-stage least squares estimation. Earnings management (conditional conservatism) helps amplify (lessen) this impact. Moreover, better external monitoring mitigates the impact of excess perks on firm crash risk. We further find that the impact of excess perks on crash risk is more pronounced in firms whose executives are approaching retirement and persists for at least two years.

Keywords: Excess perks; Crash risk; Bad news hoarding; External monitoring (search for similar items in EconPapers)
JEL-codes: G12 G14 G34 M52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (239)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:419-434

DOI: 10.1016/j.jcorpfin.2014.01.006

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