Organization capital and stock price crash risk

Leqin Chen, Adrian C.H. Lei and Chen Song

Pacific-Basin Finance Journal, 2024, vol. 88, issue C

Abstract: This study explores the relationship between organization capital and stock price crash risk. Using a sample of publicly traded firms in China between 2010 and 2022, we find that firms with a high level of organization capital have higher future stock price crash risk. This positive relationship is more prominent for firms with low financing constraints, high profit retention ratios, and high levels of risk-taking behavior than for other firms. We also examine the potential mechanisms that moderate this positive relationship. Our results indicate that the positive association is less apparent among non-state-owned enterprises, firms in intensely religious environments, firms in which management holds shares, and firms with strong monitoring vigilance. Further analysis reveals that firms can reduce this positive association by increasing the frequency with which independent directors meet and increasing the diversity of the backgrounds of independent directors. Our findings are robust to various robustness tests, such as the instrumental variable approach, entropy balancing analysis, and alternative measures of organization capital and stock price crash risk.

Keywords: Organization capital; Corporate governance; Stock price crash risk (search for similar items in EconPapers)
JEL-codes: G10 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003391

DOI: 10.1016/j.pacfin.2024.102587

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