Institutional Environment, Political Connections And Stock Price Crash Risk

Stock price crashes are particularly frequent in emerging markets represented by China.It reflects the immaturity of the capital market,resulting in the shrinkage of national wealth,and the blow to investor confidence.In recent years,some research results have found that the information quality,corporate governance,debt structure and other factors can affect stock price crash risk.However,few scholars have focused on the impact of political connections on the stock price crash risk.This paper enriches the researches in this field.It attempts to reconcile the competitive views on the hand of support and hand of predation of political connections,and provide stakeholders with a new method to predict stock price crash risk.This paper selects 9347 samples of listed companies on A-share motherboard of Shanghai and Shenzhen Stock Exchanges from 2008 to 2017 to empirically test the impact of political connections on the risk of stock price crash.The research shows that:(1)Stock price crash risk is lower in politically related companies than that of non-politically related companies,and the higher the proportion of politically related managers in CEO and the board of directors,or the higher the administrative level of CEO or directors in the government,the lower the risk of stock price crash.(2)The negative effect of political connections on the risk of stock price crash is only significant when political connections are government officials,while the representative members' connections are not effective in reducing stock price crash risk.(3)In non-stateowned enterprises and local state-owned enterprises,there is a significant negative correlation between political connections and stock price crash risk,while in central state-owned enterprises,it is not significant.(4)Institutional environment has a significant positive moderating effect on the negative correlation between political connections and the risk of stock price crash.The results of this study enrich the research on the value of political connections,and make efforts to explore the causes of extreme situations in the securities market.Some enlightening suggestions are provided to examine the value of corporate political connections,to formulate political strategies for listed companies,and to promote the fair operation of the market.