The purpose of this paper is to research the impact of firms’ political connections on the stock price crash risk.
Empirical methodology is used in this study.
Using a large sample of Chinese firms for the period 2008-2013, the authors find that corporate political connections can reduce the stock price crash risk. When managers are still in politics or firms are in high financial transparency of local governments, the relationship between political connections and the stock price crash risk is weakened. In addition, the authors’ research shows that the corporate political connections influence the stock price crash risk by affecting the speed of confirmation of bad news.
The findings in this study suggest that political connections will affect corporate disclosure.
These results can help senior executives and investors make better decisions to prevent the stock price crash risk.
This paper empirically analyzes the impact of different types of political connections on the stock price crash risk for the first time.
