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The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry

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  • Yang, Zhiqing
  • Liu, Xiaowen

Abstract

Food safety liability insurance is a way to alleviate financial crisis such as stock price crash when food safety incident occurred. This study evaluates the causal effects of compulsory food safety liability insurance on stock price crash risk. Results from our difference-in-differences estimator show that firms enforced compulsory food liability insurance are less likely to suffer crash risk. We also find that the negative effects of compulsory food liability insurance on crash risk are mediated through constraining overinvestment to enforced firms. Our study suggests the importance of cooperation between government legislation and insurance agencies oversight in food safety protection.

Suggested Citation

  • Yang, Zhiqing & Liu, Xiaowen, 2022. "The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004275
    DOI: 10.1016/j.frl.2022.103232
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    References listed on IDEAS

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    Cited by:

    1. Gongliang Zhang & Ying Zhu, 2022. "Equilibrium Analysis of Food Safety Liability Insurance and Government Supervision in China," Sustainability, MDPI, vol. 14(21), pages 1-12, October.
    2. Wang, Di & Liu, Guangqiang & Xie, Linlin, 2023. "Can compulsory liability insurance reduce agency costs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Yuan, Feng & Yuan, Jingyan, 2023. "On the relationship between protection of proprietary information and transparency of accounting information," Finance Research Letters, Elsevier, vol. 58(PB).

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    More about this item

    Keywords

    Compulsory food safety liability insurance; Crash risk; Information asymmetry; Moral hazard; Overinvestment; JEL: G38; G32;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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