Assessing the moderating role of geopolitical risk in the nexus between ESG performance and stock price crash risk: a GMM approach

We examine the role of environmental, social and governance performance (ESGP), board gender diversity (BGD), and their interactive effect on stock price crash risk (SPCR). Using a dataset of Chinese companies listed in the A-share market between 2015 and 2022 and employing three-stage least squares statistics to address the endogeneity issue, we found that ESGP is negatively associated with SPCR. Notably, BGD exhibits a positive association with SPCR. However, the interaction between ESGP and BGD reveals a negative relationship with SPCR, suggesting that ESGP moderates the positive effect of BGD on crash-related risk. Our results still hold even after conducting a series of robustness checks, such as using a fixed effect model, a two-step GMM estimator, and alternative measures of ESGP and BGD. This study contributes to the governance and sustainability literature by highlighting the influence of ESGP and BGD on SPCR and their interactive role in mitigating crash risk through enhanced transparency, stronger stakeholder relations, and improved risk management. It offers valuable organisational and policy implications, suggesting that Chinese listed companies can leverage ESGP to effectively reduce SPCR and strengthen corporate governance practices.

In recent years, stock price crash events have occurred from time to time, resulting in the unstable operation of the capital market. The risk of stock price crash has drawn wide attention from all walks of life. This paper examines the data of A-share listed companies from 2007 to 2021 to study the impact of independent directors' dissenting opinions on the risk of stock price crash. The study found that the independent directors' dissenting opinions were negatively correlated with the risk of a stock price crash, and this conclusion was still valid after a series of robustness tests. The mechanism analysis shows that the independent directors' objection can exert the governance effect, restrain the abnormal related party transactions and earnings management behavior of the majority shareholders, and thus reduce the risk of corporate stock price crash. The above results are consistent with the logic that independent directors exert signaling and governance effects by expressing dissenting opinions to control the risk of stock price collapse. This conclusion has certain significance for preventing the risk of stock price collapse and promoting the stable development of capital market.

The ownership structure of listed companies affects the risk of stock price crash. Under the background of agency conflict and decentralised equity era of listed companies in China, how to effectively reduce the risk of stock price crash is an urgent problem to be solved. The limited partnership agreement structure has the advantages of risk isolation and equity incentive, therefore, in recent years, more and more enterprises in China‘s capital market have begun to incorporate the limited partnership agreement into the company‘s equity structure. Using a sample of companies listed on Shanghai and Shenzhen A-shares from 2014 to 2021, this study empirically examines how the limited partnership agreement structure (LP Structure) affects the stock price crash risk of listed companies. The results show that the limited partnership agreement structure can significantly reduce the risk of future stock price crash, and the research results are still robust after a series of robustness tests and control of endogenous problems. The mechanism test shows that the LP agreement structure can reduce the risk of stock price crash of listed companies by restraining the tunnelling behaviour of actual controllers, strengthening the supervision effect of minority shareholders, realising effective incentives for employees and improving the information transparency of listed companies. In addition, the heterogeneity analysis shows that the LP agreement structure has a more significant impact on the stock price plunge risk of listed companies under the conditions of dispersed ownership and good legal environment. The research in this study provides an incremental literature contribution to further understanding the economic consequences of LP agreement structure, and also provides empirical evidence for more listed companies to adopt LP agreement structure as a flexible architecture.

This study combines a financial knowledge dictionary and pretraining method based on BERT (Bidirectional Encoder Representation from Transformers) to construct a deep learning model for identifying stock news sentiments. The study then calculates the sentiment metrics of all stocks and analyzes the impact of news sentiment on the risk of a stock price crash and its heterogeneity. The results show that stocks with more positive sentiment metrics have a higher risk of crash in the following year. We also investigate the information intermediation and investor sentiment channels by which news sentiment affects the risk of a crash. The results show that more net insider sales, lower information transparency, and less analyst coverage amplify the impact of news sentiment on future crash risk, which is consistent with the information intermediation channel. Additionally, more retail investor positions, more active investor sentiment, and divergence between analysts’ opinions and news amplify the impact of news sentiment on the risk of a future stock price crash, which is consistent with the investor sentiment channel.

In recent years, the executive compensation in listed companies in China has increased rapidly, and the pay gap between executives has been increasing. Not only the internal pay gap of executives has been widening, but also the external pay gap of executives has been showing an increasing trend. Most of the researches on the pay gap of executives focus on the internal tournament incentives of the internal pay gap to executives. Recently, a new research field has begun to pay attention to the external tournament incentives of the external pay gap to executives. However, there is no literature on how the external tournament incentives of the external labor market affect executives’ behavior of concealing bad news and the risk of stock price crash.First of all, based on the data of Chinese listed companies from 2006 to 2018 as the research sample, this paper uses the pay gap between CEO and the highest paid CEO of companies with similar size in the same industry to measure industry tournament incentives, and examines the relationship between industry tournament incentives and the risk of stock price crash. It is found that industry tournament incentives increase the risk of stock price crash, and the research conclusion is still valid when using industry tournament incentives to replace indicators and considering endogenous problems such as missing variables and reverse causality.Secondly, this paper also tests whether the difference in the relationship between industry tournament incentives and the risk of stock price crash conforms to the tournament theory under the situation of different CEOs’ willingness to participate in industry tournament. It is found that among non-state-owned enterprises, enterprises in the eastern region and enterprises with non-newly appointed CEOs, the positive correlation between industry tournament incentives and the risk of stock price crash is more significant, indicating that when CEOs are more willing to participate in industry tournament competition, they are more likely to conceal bad news and the risk of stock price crash is higher.Finally, this paper also explores the mechanism of industry tournament incentives on the risk of stock price collapse. It is found that industry tournament incentives will increase the risk of stock price crash by improving the degree of earnings management and reducing the readability of annual reports, which indicates that CEOs will at least conceal bad news by manipulating corporate earnings and reducing the readability of annual reports, thus leading to a higher risk of stock price crash.This paper reveals how industry tournament incentives affect CEOs’ behavior of concealing bad news and the risk of stock price crash, and also enriches the research on how executive compensation incentives affect the risk of stock price crash.

Purpose From the perspective of the environmental, social and governance (ESG) mechanism, this study aims to investigate the impact of greenwashing reporting on stock price crash risk (SPCR). Further, we investigate the moderating role of climate risk on this relationship. Design/methodology/approach Using public companies listed on the Indonesia Stock Exchange from 2019 to 2023, the dataset includes 247 firm-year observations. We conduct an ordinary least squares approach, followed by coarsened exact matching and generalized least squares for the robustness test. Findings We find that greenwashing moderately affects SPCR, suggesting that companies that amplify their environmental claims are more susceptible to market crashes. The moderating analysis indicates the imperative role of climate risk, implying that greenwashing practices under high climate risk circumstances lead to a higher risk of stock price crashes. Overall, our evidence is consistent with the masking effect of socially responsible information and that ESG greenwashing increases SPCR, which is beneficial for market participants and policymakers by providing a reliable decision-making reference for the high-quality development of Indonesia-listed companies. Research limitations/implications Despite the regression results, this study has its own limitation: due to the missing data of some companies when sample selection, greenwashing index cannot be calculated correctly, as it focuses on companies that have both ESG performance and disclosure, which may not fully capture the real greenwashing effect on SPCR. As a result, this paper omits samples with missing data, which affects the overall findings by limiting its ability to fully capture the real impact of greenwashing on SPCR in Indonesia, thereby leaving several shortcomings for future investigation. Practical implications The practical implications are twofold. For policymakers, the results highlight the urgency of strengthening ESG reporting standards in Indonesia, moving beyond voluntary disclosure to frameworks aligned with global initiatives such as the EU CSRD or US Securities and Exchange Commission rules. For investors, the evidence suggests caution in interpreting ESG claims at face value and the importance of integrating ESG quality assessments and active engagement into portfolio strategies. In this way, both regulators and investors can reduce information asymmetry and limit systemic risks arising from greenwashing. Social implications The study highlights that misleading sustainability reporting not only threatens financial market stability but also erodes public trust in corporate ESG practices. By exposing the risks of greenwashing, the findings encourage greater transparency and accountability, which can foster more responsible corporate behavior and protect broader societal interests in sustainable development. Originality/value We contribute to the literature's discussion on the greenwashing and market crash risk nexus, which is still rarely found in the context of emerging economies. Furthermore, the inclusion of climate risk provides more insightful information for market participants.

Non-technical summary The research paper studies business sophistication, tax revenue policies, and ESG (Environmental, Social, and Governance) performance across 105 Belt and Road Initiative (BRI) countries spanning from 2013 to 2021. Key insights from the study underscore a positive association between business sophistication and ESG performance. This suggests that organizations leveraging advanced knowledge and innovation are better positioned to implement effective ESG strategies. Moreover, higher tax revenue is linked to better ESG, underlining a commitment to sustainability within the business landscape. Notably, Information, Communication, and Technology (ICT) emerges as a pivotal catalyst in augmenting ESG performance, particularly when integrated with business sophistication and tax revenue mechanisms. Technical summary This study examines the relationship between business sophistication, tax revenue policies, and ESG (Environmental, Social, and Governance) performance in 105 Belt and Road Initiative (BRI) countries from 2013 to 2021, focusing on the moderating role of Information, Communication, and Technology (ICT). Using advanced econometric methods like Two-Stage Least Squares (2SLS), two-step Generalized Method of Moments (GMM), and fixed-effect regression, the research also considers factors such as microfinance institutions, commercial bank financing, and the COVID-19 pandemic. The findings reveal a significant positive link between business sophistication and ESG performance, indicating that companies with advanced knowledge and innovation are more likely to implement successful ESG policies. Higher tax revenue is also positively correlated with ESG improvements, reflecting support for sustainability. ICT is crucial in enhancing ESG performance, especially when combined with business sophistication and tax revenue. Microfinance and commercial banking are vital in promoting ESG practices in BRI countries. Despite a temporary decline in ESG performance due to COVID-19, the study predicts a post-pandemic resurgence, emphasizing the need to foster an innovation culture for sustainable development. Social media summary There is a positive association between business sophistication, tax revenues, microfinance, ICT, and commercial banking, which are key drivers of better ESG performance in BRI countries.

Previous studies have documented that information asymmetry and agency problem are the most important factors that can lead to stock price crash risk. While the supervision of stakeholders such as analysts, institutional investors and creditors can effectively reduce a firm’s stock price crash risk. Specially, as one of the firms’ important stakeholders, the customers can exert the corporate governance effect and help to reduce their supplier firms’ stock price crash risk. However, none of the existing studies has focus on the impact of certain specific characteristics of a customer on its supplier firm’s stock price crash risk. Based on customer-supplier relationship chain, this paper examines whether stock price crash risk of a customer can spread to its supplier firm owing to close economic correlation from an external perspective. Because of the existence of the relationship as an interest community between suppliers and customers, a customer and its supplier rarely stand or fall alone; when a customer has the stock price crash risk, the crash risk may spread to its supplier, which we call the contagion effect along the supply chain. Specially, when the supplier’s own corporate governance is poor or information asymmetry is serious, a customer’s stock price crash risk can easily become the last straw that will lead to a death of a camel, that is to say, when the supplier’s healthy is poor, the contagion effect will be more significant. What’s more, we further analyze how the close degree of a customer and its supplier can influence the contagion effect. We expect that closer relation will lead to stronger contagion effect. Due to closer relation, a customer or its supplier will be more difficult to change their trading object because of highly switching cost. Using a special database that both a customer and its supplier along the supply chain are listed companies, we explore the contagion effect through the supply chain based on customer stock price crash risk. It comes to the following conclusions: firstly, there is no synchronicity between a customer’s crash risk and its supplier’ concurrent stock price crash risk, but stock price crash risk of a customer is positively related with the stock price crash risk of its supplier in the following year, which means that there exists contagion effect along the supply chain. What’s more, this contagion effect only exists when the supplier’s own stock price crash risk is higher. Secondly, when a customer highly relies on its supplier or a supplier highly relies on its customer, or one firm has much proprietary investment, or the relationship between them are more stable or benign, the contagion effect is stronger. Its contributions may lie in the following three aspects: firstly, many studies investigate the contagion effect between two firms that are in the same industry or are link up by a third party, and few of them are based on contagion through a supply chain, so our study may provide a new setting on the literature of contagion effect. Secondly, the mainstream literature considers that internal factors like hiding bad information and poor corporate governance are the main factors leading to stock price crash risk. This paper shows that a customer’s stock price crash risk as an external factor can also lead to its supplier firm’s stock price crash risk, thereby helping to enrich the literature of stock price crash risk. Thirdly, most of the existing literature focuses on how customer concentration affects the supply firm’s performance; based on a special supply chain, we examine the contagion effect of customer stock price crash risk on its supplier, providing new insight into economic consequences of customer-supplier relationship and helping to enrich the literature of customer-supplier relationship.

Journal of Accounting Advances, (2020) 12(1): DOI: 10.22099/JAA.2021.35506.1949 Journal of Accounting Advances (JAA) Journal homepage: www.jaa.shirazu.ac.ir/?lang=en Presented Model for Explaining the Stock Price Crash Risk with Mediating Role of Agency Cost Mohamad Mehdi1, Zahra Vazife2*, Reza Tehrani3, Seyed Mojtaba Mirlohi4 PhD Candidate in Financial Engineering, University of Sistan and Baluchestan, Zahedan, Iran. mohamadmahdi@pgs.usb.ac.ir Assistant Professor, University of Sistan and Baluchestan, Zahedan, Iran. vazife@mgmt.usb.ac.ir Full Professor, University of Tehran, Tehran, Iran. rtehrani@ut.ac.ir Assistant Professor, Shahroud University of Technology, Shahroud, Iran. mirlohism@shahroodut.ac.ir ARTICLE INF ABSTRACT Received: 2019-11-09 Accepted: 2021-01-06 The stock price crash risk is always the inhibiting factor to attract liquidity on the capital market. Tehran stock exchange is at a lower level in terms of efficiency. Sudden changes of stock return have been observed. This will lead to liquidity transfer to non–productive markets including the Exchange of exchange and gold. The aim of this paper is to model the stock price crash risk in Tehran stock exchange. In this regard, the effect of factors such as cash management, financial distress, and disclosure quality and board composition were measured in the stock price crash risk. Also, the agency cost is considered as an intermediary variable. The statistical population of the companies listed in Tehran stock exchange is in the period from 1392 to 1396. To test the hypotheses, multivariate linear regression analysis and structural equation method are used. The results of the hypotheses tests show that, apart from the financial distress of other studied variables, the stock price crash risk is effective * Corresponding author: Zahra Vazif Assistant Professor, University of Sistan and Baluchestan, Zahedan, Iran. Email: vazife@mgmt.usb.ac.ir 1- Introduction As companies grow up, there is no possibility of all the owners in the company for that purpose. This will cost the agency. In the absence of complete transparency of financial reporting, there will be a chance to exploit managers to hide negative information about the company to maintain their jobs and reputation. If the company has no liquidity, it does not succeed in using short - term investment opportunities. The continuation of this state is accompanied by the falling price of the company's shares and the decline of its value. It is vital to identify the factors affecting stock price crash risk in Tehran Stock Exchange. Because the Iranian capital market is exposed to many dangers due to being a young market. In this model, the quality disclosure quality (risk assessment and corporate information disclosure), board of directors (variables of corporate governance mechanism), the cash flow variable, the cash management variable as predictor variables and agency cost variable (motivational variable and managerial characteristics) are considered as mediating variables. 2- Hypothesis Research hypotheses are designed as follows. 1- Cash management has a significant effect on the stock price crash risk by mediating the role of agency cost. 2-The board composition with the mediating role of agency cost has a significant effect on the stock price crash risk. 3-The quality of disclosure of information on the role of mediating agency cost has a significant effect on the stock price crash risk. 4-The financial disturbances with the mediating role of agency cost has a significant effect on the stock price crash risk. 3- Methods The present study is applied in terms of purpose, practical research and in terms of data collection method, post - event research method, which is carried out using multivariate regression method and econometric models. The study population studied in this study comprises the companies listed in Tehran Stock Exchange from 1392 to 1396 and the selected sample of the research is companies that have the following set of conditions: 1-By the end of 1393, the company’s name is listed in the companies listed in Tehran Stock Exchange. 2-Their financial year ends in March and has not changed during the study. 3- The company did not perform any sorption, consolidation, analysis operations during the study period. 4- The corporate symbol is not off a month or so. 5-The company’s financial information is available during the period. 6-There are no insurance, bank and insurance companies. The present research data were extracted from Tehran Stock Exchange (TSE) and other related bases. The final analysis of the collected data was done by Excel, Matlab, Eviews, smartpls. 4- Results To reveal the latent variables of research, obvious variables were used. Cash management latent variable (cash adjustment speed, cash surplus), latent variable of the board composition (total number of members, members of duty and non - duty), the latent variable of disclosure of information (reliability, timeliness), the latent variable of the financial distress (loss, negative working capital, the simultaneous existence of negative working capital and loss in the previous year), the latent variable of agency cost (leverage ratio, the ratio of assets, the ratio of assets, and the latent variable stock price crash risk variable (by three factors) was revealed. The results indicate that the composition of the board, cash management and disclosure quality have direct and significant effect on agency cost. This means that the agency cost decreases with increasing board composition, cash management and disclosure quality. But financial distress has no direct and significant effect on agency cost. Also agency cost has a positive and significant effect on stock price crash risk. This means that the higher the agency cost, the stock price crash risk also increases. 5- Conclusion Optimal management of cash, transparent and proper disclosure of company information, corporate governance (board composition) are among the factors that prevent stock price crash risk. They risk sudden fluctuations in stock returns of companies' stock returns. Market activists and managers are suggested to pay special attention to these factors to witness sudden liquidity of liquidity from the stock market and provide a suitable environment for micro - investors. Market managers are able to reduce the stock price crash risk by setting rules such as increasing transaction transparency, transparency of financial reporting and disclosure of corporate information. Corporate managers also keep the cash flow and optimal value of it at the point of equilibrium and direct their board to no duty- binding members. It also enhances disclosure of information in terms of disclosure quality and timely disclosure, which can control the cost of the agency and manage the stock price crash risk. Keywords: Stock price crash risk, agency cost, cash management, disclosure quality. Journal of Accounting Advances, (2020) 12(1): 1-27

Geopolitical uncertainty imposes a significant impact on stock prices in the stock market. We construct dynamic estimations of geopolitical risk exposure of individual stocks listed in China and examine the relationship between individual geopolitical risk and future stock price crash risk. Our results show that geopolitical risk is a more prominent macro factor than economic policy uncertainty measure that affects stock price crash risk. Investigating the underlying mechanism, we find that firms with highly synchronized stock prices, low analyst coverage ratio, low institutional holdings, and large investor heterogeneity tend to be affected more by geopolitical shocks, leading to future stock price crashes. This study shows the importance of promoting efficient information transmission system and improving corporate governance.

PurposeThe purpose of this paper is to explore the impact of product market competition on the risk of stock price crash based on the degree of industry competition and the competitive position of enterprises.Design/methodology/approachThis paper chooses the data of Shanghai and Shenzhen A-share listed companies from 2009 to 2017 as samples and uses a threshold regression model to explore the impact of product market competition on the risk of a stock price crash.FindingsThe results show that: the overall level of industry competition is negatively correlated with the risk of stock price crash; the competitive position of enterprises and the risk of a stock price crash. The correlation is not significant: for high competitive enterprises, the degree of industry competition is negatively correlated with the risk of stock price crash; for low competitive enterprises, the degree of industry competition is positively correlated with the risk of a stock price crash and the conclusions obtained have passed the robustness test.Originality/valueThis paper not only enriches the literature on the relationship between product market competition and the risk of stock price crash but also has reference significance for supervisors to allocate resources to supervise information disclosure of listed companies.

This paper takes China Shanghai and Shenzhen A-share listed companies from 2007 to 2021 as samples to empirically test the impact of major shareholder reduction on the risk of stock price crash. This paper finds that the reduction of major shareholders promotes the risk of stock price crash of listed companies, that is, compared with listed companies without major shareholders’ reduction, the risk of stock price crash of listed companies with major shareholders’ reduction is higher, and this conclusion still holds after controlling the conservative factors. Further examination shows that the major shareholder’s manipulation of information has an impact on the risk of stock price crash, and the impact of major shareholder’s reduction on the risk of stock price crash is more obvious in China state-owned enterprises, non-high-tech enterprises, enterprises in the bull market period and enterprises in areas with low market investors.

ABSTRACTResearch Question/Issue: This study examines how the informal hierarchy among directors of a firm influences the risk of stock price crash. We theorize that a clear informal hierarchy among directors increases managerial coordination of activities to hide bad news, which increases the risk of future stock price crash.Research Findings/Insights: Consistent with our theoretical predictions, our findings show that the informal hierarchy among directors, measured based on the number of board appointments they have, is positively associated with the risk of future stock price crash. This association is weaker for firms with larger boards but stronger when the CEO's status is higher than that of the majority of the directors on the board. We also find evidence that information hierarchy increases the degree to which managers hide bad news.Theoretical/Academic Implications: This study advances our understanding by showing that an informal hierarchy that tacitly forms among directors on a board can significantly guide boardroom interactions. Specifically, the findings suggest that a clear informal hierarchy among directors enhances their coordination to hide bad news and thereby increases stock price crash risk. Furthermore, the results provide evidence that CEO's status and board size are important factors influencing the functioning of board informal hierarchy.Practitioner/Policy Implications: The results have important implications for researchers and policymakers. The findings show that the informal hierarchy among directors can shape managerial behavior and guide boardroom interactions. The results also suggest that improving formal governance mechanisms can enhance boardroom interactions by moderating the effects of informal hierarchy in the context of China.

This study empirically tests the effect of stock risk warning of listed companies on the risk of stock price crash of non-warning companies in the same industry and its mechanism in the Chinese A-share listed companies from 2008 to 2021 as samples. The research results show that the risk warning information has a capital market governance effect on peer companies, that is, the new risk warning information in an industry will alleviate the risk of stock price crash of peer companies. This conclusion remains robust after a series of robustness and endogeneity tests. The mediating mechanism test shows that the idiosyncratic information content of the stock price mediates the process of risk warning information affecting the risk of stock price crash of peer companies. The heterogeneity test shows that the governance effect of risk warning information on the risk of stock price crash of peer companies is more significant when the problem of company agency is more serious, the competitive market position is lower, or the differences in opinion among investors are smaller. This study provides empirical evidence for the necessity of the existence of the risk warning system. Additionally, it provides a reference for the capital market risk supervision of similar transition economies such as China.

For China’s stock market, which is in the emerging capital market, chasing the rise and killing the fall and extreme market risks occur frequently. The risk of stock price crash caused by this phenomenon has become a major obstacle to the orderly development of capital market. The managerial characteristics of scholar-type CEOs are of great significance to the management behavior of enterprises. Their management style is reflected in the decision-making behavior of enterprises, which provides a new research perspective for the risk of stock price crash. Based on the brand theory and the reputation theory, academic experience shapes executives’ higher moral quality and sense of social responsibility, and shapes their rigorous logical reasoning and analytical judgment ability; it makes them have higher reputation cost, and makes them more conservative, self-disciplined, professional and rational, and more motivated to restrain themselves when participating in management decision-making. Based on the A-share listed companies in China from 2009 to 2018, this paper empirically tests the objective performance, transmission path and influencing factors of CEO academic experience influencing stock price crash risk. From the perspective of information risk and agency risk, we find that scholar-type CEOs can significantly reduce the risk of stock price crash by reducing information risk and agency risk; further research on the influencing factors and economic consequences of stock price crash risk shows that CEO academic experience can reduce the risk of stock price crash more effectively in the case of non-state-owned enterprises, the combination of two jobs, and higher institutional investors’ shareholding ratio. This paper interprets the formation mechanism of stock price crash risk of listed companies based on the perspective of executive governance, and supports the information hiding hypothesis. From the theoretical level, the research result provides ideas for further exploring how management experience affects corporate financial behavior, and provides a new perspective and beneficial supplement for the research of high-level echelon theory and executive heterogeneity; from the practical level, it provides new evidence support for listed companies to make scientific and reasonable CEO appointment decisions and high-level talent selection, and provides practical guidance and experience reference for further exploring the impact of executive academic experience on enterprise management behavior, promoting the healthy and orderly development of the capital market, and establishing a stable multi-level capital market.