Executive Political Connections, Information Disclosure Incentives, and Stock Price Crash Risk: Evidence from Chinese Non-State-Owned Enterprises

Sifei Li, Feng Cao, Jian Sun and Qianqian Hu

Emerging Markets Finance and Trade, 2021, vol. 57, issue 15, 4398-4407

Abstract: This paper examines whether and how executives’ political connections affect their incentives to withhold bad news, measured by the stock price crash risk. We find that political connections are negatively associated with the stock price crash risk. Moreover, we show that political connections reduce firms’ financial constraints and encourage firms to disclose more bad news to compete for government subsidies, which lowers managers’ incentives to hide bad news. We also find that the negative relationship between political connections and crash risk varies with external institutions. Our results are robust to numerous robustness tests.

Date: 2021
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DOI: 10.1080/1540496X.2020.1816460

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