Corporate Diversification Strategy And Future Stock Price Crash Risk

This paper examines how industrial diversification influences the future crash risk of firms,and I further explore how the relationship changes for firms at different stages of life cycle.In addition,this paper provides one channel in which the industrial diversification affects the future crash risk,and how business life cycle may influence the relationship between industrial diversification and future crash risk.Based on the panel data of A-share firms from 2003 to 2016,the empirical results show that the industrial diversification is significantly and negatively related to the future crash risk.I also find that the effect of industrial diversification on future crash risk is more prominent for firms at the mature stage of life cycle.In addition,due to the concern of self-selection bias on the measure of diversification decision,this study used the treatment effect model to control for the self-selection problem,which confirms the prior results.I also take the ultimate controller feature into consideration and find that the effect of industrial diversification on future crash risk is more prominent for stated-owned firms.Finally,the findings have implications for firms,investors and the regulators.