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The Impact of Corruption Investigations on Stock Price Crash Risk: Evidence from the Crackdown on “Tigers” in China

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  • Chao Yang
  • Qizhi Tao
  • Jiangze Du
  • Stephen X. Gong

Abstract

Using data on corrupt senior officials in China, we find that corruption investigations significantly increase the stock price crash risk for listed firms located in the provinces where the senior officials formerly worked, and the impact is positively related to the officials’ political level. Channel tests find that corruption investigations increase negative news, which results in an increase in crash risk. Additional tests document that state-owned enterprises and politically connected firms experience lower crash risk, and the impact is more significant in more-developed provinces. In addition, we find that firms directly associated with investigated officials experience negative cumulative abnormal returns.

Suggested Citation

  • Chao Yang & Qizhi Tao & Jiangze Du & Stephen X. Gong, 2021. "The Impact of Corruption Investigations on Stock Price Crash Risk: Evidence from the Crackdown on “Tigers” in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(15), pages 4261-4271, December.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:15:p:4261-4271
    DOI: 10.1080/1540496X.2020.1859367
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    Cited by:

    1. Wang, Chih-Wei & Lee, Chien-Chiang & Wu, Lin-Tan, 2023. "The relationship between cash flow uncertainty and extreme risk: International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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