Confucian culture and stock price crash risk

Xixiong Xu, Wanli Li and Xichan Chen

China Journal of Accounting Studies, 2019, vol. 7, issue 1, 25-61

Abstract: Using a sample of Chinese-listed firms during the period from 2008–2017, this paper investigates the impact of Confucian culture on stock price crash risk and its underlying mechanism. We find that Confucianism is significantly negatively associated with firm-specific crash risk. Further channel tests show that Confucian culture curbs crash risk mainly through mitigating agency conflict, improving financial information quality and restraining managerial overconfidence. Moreover, we also document that the negative association between Confucianism and crash risk is more prominent in firms with weaker corporate governance and lower analyst coverage. Our findings suggest that Confucian ethics, as an implicit norm and alternative mechanism of formal institutions plays a critical role in preventing stock price crash and promoting the healthy development of capital market. This study not only enriches the literature on stock price crash risk but also deepens theoretical cognition of the positive value of Confucian culture from firm-level.

Date: 2019
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DOI: 10.1080/21697213.2019.1625577

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