Research On Institutional Investor Horizon,Analyst Optimism And Stock Price Crash Risk

Combined with the background that China continues to accelerate the deepening reform of the capital market,and the regulators also expect to introduce more medium and long-term funds into the stock market to promote the high-quality development of the capital market,the author examines the relationship between the institutional investor horizon,analyst optimism and the risk of stock price crash.Using the data of China’s A-share listed companies from 2007 to 2019,with the combination of normative research and empirical research,on the basis of behavioral finance theory,information asymmetry theory and principal-agent theory,this paper reviews the current situation and relevant literature of institutional investors,analysts and stock price crash risk,and puts forward the theoretical analysis framework of institutional investors,analyst optimism and stock price crash risk.It has important reference significance for supporting regulators to introduce long-term oriented institutional investors,curb analyst optimism,reduce the risk of stock price crash,and maintain the stable and healthy development of capital market.This paper discusses the influence law of institutional investor horizon on stock price crash risk,the impact of analyst optimism on stock price crash risk,the impact of institutional investor horizon on analyst optimism and the transmission law of institutional investors inhibiting stock price crash risk by reducing analyst optimism.In the empirical research,the main empirical results are obtained by using the panel data fixed effect model.Furthermore,the interaction term and group test are used to investigate the influencing mechanism and moderating effect,and the causal stepwise regression method is used to test the mediating effect,as well as the panel instrumental variable regression analysis,which is included in the paper.According to the research:Firstly,the study finds that institutional investors who prefer long-term investment will significantly reduce stock price crash risk.Considering the possible endogenous issue,the result is still significant.The mechanism test demonstrates that long-term shareholding and professional investment can indeed strengthen institutional investors’ supervision and governance of the firms,reducing the risk of stock price crash.Furthermore,this paper discusses institutional investor behavior characteristics(such as herding behavior,information competition,and clique)as well as the impact of external environmental factors(such as investor protection and external monitoring)on the investment horizon of institutional investors.The findings show that in samples with a high level of institutional investor clique,low level of herding behavior,and competition over information among institutional investors,the institutional investor horizon has a more significant inhibitory effect on the risk of stock price crash.Meanwhile,in the sample of high level of investor protection and external monitoring,the longer investment horizon can promote institutional investors to participate in the supervision of listed companies,and play a greater role in reducing the stock price crash risk.This paper further uses the proxy variables of institutional investors horizon and other proxy variable of stock price crash risk to conduct baseline regression,and controls the influence of other firm-level factors in the robustness tests.We discover that long-term institutional investors can significantly reduce the risk of stock price crash,and has a sustained effect on reducing the risk of stock price crash.Secondly,the study finds that there is a positive relationship between analyst optimism and stock price crash risk.Considering the possible sample selection bias and endogeneity issues,the result is still significantly valid.On this basis,it also explores the impact path and transmission mechanism of analyst optimism on stock price crash risk,that is,analyst optimism can affect stock price crash risk through the mediating effects of executive shareholding and agency cost.In addition,this paper also discusses the moderating effects of analyst attention on analyst optimism.This paper further controls the influence of other relevant factors,and finds that analyst optimism will significantly increase the risk of stock price crash,and it also has a sustainable effect on raising the stock price crash risk.At the same time,we use the proxy variable of stock price crash risk to conduct baseline regression,and the research conclusion remains consistent.Thirdly,the institutional investor horizon is significantly negatively correlated with analyst optimism,and after considering the sample selection bias and endogenous issues,the conclusion of the study is still valid.The mechanism test shows that long-term institutional investors can make full use of their own preference and monitoring effect on the firms to influence the optimism of analysts’ earnings forecasts through their relationship with listed firms and security companies(such as shareholders and clients),and alleviates the conflict of interests between management and analysts,and between employer of analysts and analysts.In the companies with overconfidence of executives and a high proportion of analysts from the top three security companies,the institutional investor horizon has a more significant inhibition on analyst optimism.Meanwhile,long-term institutional investors can use their advantages in information collection to improve the quality of information,and improve the accuracy of the analysts’ earnings forecasts,thereby reducing analyst optimism.In addition,based on the expansion research of other characteristics of institutional investors,the greater the institutional investor horizon,the institutional investors can play a stronger supervisory role and obtain professional advantages,and reduce the optimism in the sample that the longterm institutional investors are more dominant,the institutional investors are more stable and professional.Based on the other extended research of institutional investors’ behavior,it is found that the effect of institutional investor horizon on the reduction of analyst optimism is more pronounced in the sample with the high level of institutional investor clique,the lower level of institutional investor herding behavior,and the low level of institutional investor competition over information.This paper further controls the influence of other company level factors,uses the proxy variables of institutional investors horizon and other regression method(Fractional Logit Regression)to conduct robustness tests,and finds that long-term institutional investors can still significantly reduce analyst optimism.This paper also employs the causal stepwise regression method to investigate the relationship between institutional investor horizon,analyst optimism and stock price crash risk.The analyst optimism can play a partial mediating role in the process of institutional investor horizon affecting the stock price crash risk.Institutional investors can curb the stock price crash risk by reducing analyst optimism.The mediating effect still exists when further controlling other company level factors.Furthermore,the mediating role of analyst optimism is still valid for the two-year stock price crash risk index.Compared with the existing research,the main contributions of this paper are embodied in the following three aspects.Firstly,this paper demonstrates the critical role of institutional investor horizon in corporate governance,thereby expanding the research on the economic consequences of institutional investor horizon.Using principal-agent theory and behavioral finance theory,this paper investigates the positive role of institutional investor horizon on institutional investors’ supervisory initiative and professionalism.This study systematically examine the impact and mechanism of institutional investor horizon on their own professionalism and supervision initiative on the risk of stock price crash of listed companies.The paper confirms the positive role of the institutional investor horizon in the long-term development of the company,which helps to improve the transparency of the company,promotes the healthy and stable development of the market,and has important reference significance for institutional investors to participate in corporate governance,carry out equity investment activities and establish proper investment concepts.Secondly,this paper also analyzes the analyst optimism from three perspectives: Analyst intermediary,supervision and pressure utility.Analyst optimism will reduce the effects of analysts as intermediaries and supervisors,and will increase the pressure on executives,leading to executives’ tendency to take short-sighted actions,exacerbating the risk of stock price collapse.This paper broadens the scope and mechanism of analyst optimism on the risk of stock price collapse.Finally,this paper examines the inhibitory effect of long-term oriented institutional investors on analyst optimism,clarifies the logical lines of institutional investor horizon affecting analyst optimism,provides more ideas for reducing analyst optimism and suppressing the risk of stock price collapse in the future,and enriches the research on the influencing factors of analyst optimism.