Social capital, independent director connectedness, and stock price crash risk

Jieli Xing, Yongjie Zhang and Xiong Xiong

International Review of Economics & Finance, 2023, vol. 83, issue C, 786-804

Abstract: This paper investigates the previously unexamined influence on stock price crash risk of independent directors' social capital, proxied by a measure of their social network centrality. Using a large sample of Chinese listed firms for the 2013–2019 period, we find that firms with independent directors possessing higher social capital tend to have lower stock price crash risk. This result is robust in instrumental variable regressions and propensity score matching regressions, and to alternative model specification and variable choices. Further analyses reveal that the negative impact of independent directors’ social capital on stock price crash risk is more prominent for non-state-owned enterprises, firms with strong external monitoring, and firms with high separation of ownership and control. Moreover, we observe that firms whose independent directors possess higher social capital have less financial opacity, less corporate fraud, and less board absenteeism. Our study suggests that social capital is an important variable when investigating the predictors of a stock price crash.

Keywords: Social capital; Crash risk; Independent director; Reputation; Information (search for similar items in EconPapers)
JEL-codes: G34 M41 Z13 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:83:y:2023:i:c:p:786-804

DOI: 10.1016/j.iref.2022.10.020

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