Research On The Impact Of Independent Director Reputation Incentives On The Stock Price Crash Risk

The systematic stock disaster events transformed from individual stock crash have seriously impacted the capital market,making the stock price crash risk more and more concerned.Based on the theory of information asymmetry and principal-agent,scholars explain the causes of the stock price crash risk.They believe that the bad news hoarding behavior of the management makes the stock price deviate from its intrinsic value.When the accumulated bad news is finally released to the market,the possibility of stock price crash increases.As an important internal governance mechanism,independent directors reputation incentives can theoretically form an implicit constraint on independent directors,stimulate independent directors to supervise the management's opportunistic behavior,and reduce the stock price crash risk.However,in reality,independent directors are widely disputed because of their "independence" and "ignorance".With the improvement of the governance level of Listed Companies in China,the role of independent director reputation incentives has become increasingly prominent,but there is still lack of empirical evidence support.In order to clarify the effect of independent director reputation incentives in corporate governance and capital market practice in China,this paper uses the data of 2014-2018 Shanghai and Shenzhen A-share listed companies to explore the mechanism of independent director reputation incentives on the stock price crash risk,and examine the different reputation incentive effect of independent directors with various background characteristics.The study found that:(1)Independent director reputation incentives effectively played a role in supervision and governance,which can significantly reduce the stock price crash risk;(2)The reputation incentive effect of independent directors with different background characteristics is different.The reputation incentive of independent directors with academic background and overseas employment background can significantly reduce the stock price crash risk,while the reputation incentive of independent directors with different professional background has no significant difference and governance effect;(3)Further mechanism tests show that independent director reputation incentives reduces the stock price crash risk by alleviating the principal-agent conflict between shareholders and management.The above results remain valid after controlling endogeneity,replacing independent director reputation incentives and stock price crash risk variables,and expanding the time window.The marginal contribution of this research is mainly as follows: First,this paper links the reputation incentive mechanism and background characteristics of independent directors,explores the differences of reputation incentive effects of independent directors from the background source,and focuses on the stock price crash risk,forming the research path from the characteristics and incentives mechanism of senior executives to corporate governance and then to capital market.Second,this paper improves and optimizes the independent director reputation index,introduces background features,and forms different background independent director reputation incentive variables,providing a basis for in-depth investigation the reputation incentive effect of independent directors with academic background,professional background and overseas background.Third,this study helps to fully understand the effectiveness of reputation incentive mechanism of independent directors,provides a basis for strengthening the supervision and governance effect of independent directors from reputation incentive channels,and indicates the direction for improving the quality of corporate governance in China,reducing the stock price crash risk and stabilizing the capital market.