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Foreign investors and stock price crash risk: Evidence from China

Author

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  • Huang, Zhi-xiong
  • Tang, Qi
  • Huang, Siming

Abstract

This study examines whether and how foreign investors affect firm-specific crash risk. Based on China’s stock market, we show that foreign investors significantly increase stock price crash risk and the positive association is more pronounced in firms with high levels of information asymmetry or efficient internal control. We address endogeneity issue using a quasi-natural experiment, namely, the revision of Foreign Investment Industrial Guidance Catalog in 2011, and results still hold. Overall, this study provides policy implications on the effect of foreign investor in emerging capital markets.

Suggested Citation

  • Huang, Zhi-xiong & Tang, Qi & Huang, Siming, 2020. "Foreign investors and stock price crash risk: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 210-223.
    • Handle: RePEc:eee:ecanpo:v:68:y:2020:i:c:p:210-223
    DOI: 10.1016/j.eap.2020.09.016
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    More about this item

    Keywords

    Foreign investors; Stock price crash risk; Information asymmetry; Internal control;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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