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Vertical interlock and stock price crash risk

Chang Yang, Xin Chen and Xian Chen

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: This paper investigates the impact of vertical interlock on future stock price crash risk. Using a sample of 11,662 observations on Chinese listed firms affiliated business groups from the year 2007 to 2018, we find that affiliated listed firms with vertical interlock tend to have greater stock price crash risk, and the positive effects of vertical interlock are more pronounced when the interlocking positions have higher hierarchy in controlling business groups. Such results remain strong after controlling for other important factors and conducting several robustness checks. Overall, our findings suggest that vertical interlock tends to facilitate sheltering bad information by majority shareholders, implying intensified agency problems between majority shareholders and minority shareholders within business groups.

Keywords: Vertical interlock; Business group; Emerging market; Stock price crash risk; Bad news hoarding (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x19305037

DOI: 10.1016/j.pacfin.2020.101387

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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