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Diversification Strategy and Stock Price Crash Risk：Evidence from China

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  • Jun Qi
  • Wenying Diao

Abstract

This study examines the impact of the corporate diversification strategy on the stock price crash risk. Using a large sample of Chinese A-share listed companies for the period 2003-2017, we find the stock price crash risk significantly increases when the operation strategy of a firm changes from a specialized operation to a diversified operation or the degree of diversified operations deepens. We also find that our results are stronger for non-state-owned listed firms, but not significant for state-owned firms. Furthermore, we find that the significant positive association between diversification and crash risk is more pronounced for firms with low external audit quality and low analyst coverage. Our study suggests that the diversification of operating strategy matter in determine stock price crash risk.

Suggested Citation

  • Jun Qi & Wenying Diao, 2021. "Diversification Strategy and Stock Price Crash Risk：Evidence from China," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(3), pages 1-94, July.
    • Handle: RePEc:ibn:ijbmjn:v:15:y:2021:i:3:p:94
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    References listed on IDEAS

    as
    1. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    2. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    3. Yu, Jingwen & Mai, Dongren, 2020. "Political turnover and stock crash risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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