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Co-opted directors, gender diversity, and crash risk: evidence from China

Erin H. Kao (), Ho-Chuan Huang (), Hung-Gay Fung () and Xiaojian Liu ()
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Erin H. Kao: Tunghai University
Ho-Chuan Huang: Tamkang University
Hung-Gay Fung: University of Missouri St. Louis
Xiaojian Liu: Hunan University

Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 2, No 3, 500 pages

Abstract: Abstract This study examines how the composition of the board of directors at Chinese firms affects crash risk. The results indicate that co-opted directors (i.e., directors appointed after the CEO assumed office) have a positive and significant effect on crash risk; the positive relation between board directors and crash risk is primarily driven by co-opted male directors, implying a gender difference on crash risk. Non-co-opted independent directors mitigate crash risk, but the negative relation between gender and crash risk is much stronger for female directors than for male directors. The results indicate that co-option/non-co-opted independence along with gender diversity on the board plays an important role in shaping crash risk behaviors. The director-crash risk linkage disappears at state-owned enterprises, suggesting that ownership structure affects board behaviors and board members play the role of rubber-stamp. Finally, the relation between gender and crash risk is more pronounced at crash-risk prone firms with high earnings management and high financial leverage.

Keywords: Co-option; Crash risk; Gender diversity; Independent director; State-owned enterprises (search for similar items in EconPapers)
JEL-codes: G3 G32 G34 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11156-019-00850-3

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