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Local Institutional Environment And Stock Price Crash Risk: Evidence From China

Author

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  • XIAOJIAN TANG

    (College of Finance, Nanjing Agricultural University, Nanjing, Jiangsu 210095, P. R. China2Dongbei University of Finance and Economics, Dalian, Liaoning 116025, P. R. China)

  • STEPHANIE TSUI

    (Department of Accounting, College of Commerce, National Chengchi University, Wenshan District, Taipei City 11605, Taiwan, R. O. China)

  • KUANG-TA LO

    (Department of Public Finance, College of Social Sciences, National Chengchi University, Wenshan District, Taipei City 11605, Taiwan, R. O. China)

Abstract

Based on province-level data on China’s local institutional environment from 2008 to 2014, we explore the relationship between the local institutional environment and stock price crash risk. We find that a stronger local institutional environment curbs stock price crash risk. Furthermore, we explore the relationship between local institutional environment and stock price crash risk for state-owned versus privately owned enterprises. We find that a stronger local institutional environment is more likely to curb stock price crash risk in state-owned enterprises than in privately owned enterprises. Our results are robust to additional tests. These findings suggest that it is necessary to accelerate the progress of local marketization in China to ensure the development of the stock market and a strong economy.

Suggested Citation

  • Xiaojian Tang & Stephanie Tsui & Kuang-Ta Lo, 2024. "Local Institutional Environment And Stock Price Crash Risk: Evidence From China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 69(06), pages 1955-1976, September.
    • Handle: RePEc:wsi:serxxx:v:69:y:2024:i:06:n:s0217590821400014
    DOI: 10.1142/S0217590821400014
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    Keywords

    Local institutional environment; stock price crash risk; state-owned enterprises; privately owned enterprises;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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