Research On The Impact Of Political Connection And Over-investment On Stock Price Crash Risk

After more than 20 years of development,the securities market in China has become more sophisticated,which makes important role in the national economy.But there are still many imperfections in China's securities market,the most direct problem is that the price crash repeatedly.Once the shares tumbled,investor losses and the stability of the securities market would be affected.Stock price crash risk is more and more become a hot research theme in academe.Investment activities is an important source of profits and cash flow.Over-investment consumes company's resources,brings losses for the companies and weakens the competitiveness of companies,consequently reduces corporate value.So have the over-investment influenced the securities market and aggravated stock price crash risk?Meanwhile,political connections have been becoming a replacement mechanism of law system to some degree.It brings both positive and negative effect to companies,does over-investment exacerbate or mitigate stock price crash risk if enterprises have political connections?To answer these questions,this paper used data form 2007 to 2016 A-shared listed companies as research data.In combing and summarizing on the basis of relevant researches both domestic and foreign,we use descriptive statistics,correlation test,and multiple regression analysis and robustness inspection to research the relationship between political connections,over-investment and stock price crash risk.The conclusions of this paper are as follows:(1)over-investment and stock price crash risk has a significant positive relationship,which meant the higher over-investment,the higher the risk of listed company shares crashed.(2)Overall,political connections would not reinforce or weaken the positive relationship between over-investment and stock price crash risk.In the state-owned enterprises,political connections has significant effects.(3)From the view of agency cost point,study the impact of over-investment on stock price crash risk.Then,this paper divides the sample companies into high agency cost and agent cost is low.We found that in the high agency cost enterprises,Over-investment and stock price crash risk has a significant positive relationship,but not in low agency cost enterprises.(4)In the process of further analysis,the sample is divided into state-owned enterprises and non-state enterprises.In the state-owned enterprise,Over-investment and stock price crash risk has a significant positive relationship,but not in non-state enterprises.(5)When the sample is divided into three different stock markets:Main Board,Small and Medium-sized Enterprise Board and Growth Enterprise Market.Only in Main Board,Over-investment and stock price crash risk has a significant positive relationship,but not in other market sectors.These findings can help supervisory consummate the relevant laws and strengthen management.Also can help enterprises make rational and reasonable investment decisions.Finally,reduce the financial risk and maintain the stable development of stock market.