Recently, the top international finance journal-Journal of Corporate Finance accepted the publication of the paper Internal Coalition and Stock Price Crash Risk, which is co-authored by Professor Rao Yulei, Associate Professor Wang Jianxin (corresponding author), Xu Lin and Professor Cheng Yingmei of Florida State University. Journal of Corporate Finance is the most authoritative academic journal in the field of corporate finance. It is a four-star ABS journal with an average impact factor of 3.184 in the past five years. It aims to publish high-quality theoretical and empirical papers in the fields of corporate finance and corporate governance.
The risk of individual stock price crash refers to the risk of a crash due to the concealment, accumulation, and outbreak of bad news, which causes the stock price to fall sharply. The economic consequences of the stock price collapse are very bad, which will not only harm the interests of investors, but also be detrimental to the healthy development of the capital market. In recent years, research on the risk of individual stock price collapse has become one of the hot issues that academia and practice circles pay attention to. This article takes a brand new perspective—CEO internal alliance—to study whether the relationship between the CEO and the company's internal executives and directors affects the risk of stock price collapse. The newly appointed CEO of an enterprise often intentionally replaces and appoints some senior executives or directors during his tenure in order to form an alliance that benefits him. The paper uses the Chinese listed companies from 2000 to 2014 as research samples. The empirical research finds that this kind of CEO internal alliance relationship will lead to a higher risk of a company’s stock price collapse. Further research finds that the impact is more significant in non-state-owned enterprises with low equity concentration. At the end of the paper, the examination of the underlying mechanism found that the alliance relationship within the CEO does lead to more hiding and accumulating bad news behavior.
The research is based on our country's characteristics of "human relationship culture" and "guanxi culture", and provides theoretical support for investors and regulatory authorities to monitor company internal relationships, reduce information asymmetry and collapse risks, and promote the healthy development of capital markets. The research is funded by the National Natural Science Foundation of China. The publication of the paper reflects the vigorous development of applied economics in our school and the continuous improvement of scientific research.
Paper link：https://doi.org/10.1016/j.jcorpfin.2020.101640
