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Bank monitoring and stock price crash risk: Evidence from China

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  • Suyu Sun
  • Xueling Shang
  • Weiwei Liu

Abstract

This paper documents the negative relation between credit line and stock price crash risk in a weak-efficiency and bank dominated environment like China. Using data from china’s A-share listed firms, we find a significant negative relationship exists between credit line and stock price crash risk. The underlying mechanism analysis demonstrates that the bank monitoring of management, major shareholder’s tunneling activities, and financial constraints are the underlying mechanism. In heterogeneous tests, we find vicious competition among banks and preference for SOEs will weaken the monitoring effect of credit line. Finally, we use the first time credit line issuance as an exogenous shock, the PSM-DID test exhibits the same results.  JEL classification numbers: G21, G31, G32

Suggested Citation

  • Suyu Sun & Xueling Shang & Weiwei Liu, 2020. "Bank monitoring and stock price crash risk: Evidence from China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(1), pages 1-2.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:1:f:10_1_2
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit line; Stock price crash risk; Principle agent problem;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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