Can Executives’ Military Experience Mitigate Stock Price Crash Risk？From the Perspective of Executives’ Human Capital and Social Capital

Abstract

The global spread of “COVID-19” has severely attacked the real economy and the financial market. How to maintain the order of the capital market has become a common concern of the government and investors. This paper examines the influence of executives’ military experience on the stock price crash risk. The empirical results show that the military experience of executives can reduce the stock price crash risk effectively, and the chairman’s military experience plays a more significant role. After controlling the endogeneity problem by Propensity Score Matching （PSM）, Heckman two-stage regression and change of dependent variables, the conclusion remains unchanged. Further, when the company has non-top ten audits and when local government officials have military experience, the stock price crash risk of the company whose executives have military experience reduces more prominently. In other words, the military experience weakens executives’ motivation to hide bad news through the following two mechanisms: （1） Executives’ military experience has an imprinting effect. Strict discipline standards in military life enable soldiers to have high moral standards, sense of honor and responsibility, integrity and self-discipline, and other good qualities, which have an imprinting effect on executives’ disclosure behavior. When the corporate governance environment is poor, the self-restraint mechanism of military corporate executives can be an alternative to the formal corporate governance mechanism. （2） The social network formed between military corporate executives and military government officials has a resource effect and a supervision effect. Based on the common military experience, corporate executives and government officials build a social network, which can provide enterprises with powerful resource support and reduce the probability of getting into financial trouble; at the same time, the intent of maintaining the long-term stable relationship discourages executives’ behavior of hiding bad news. We have the following three probable contributions: Firstly, from the perspective of executives’ human capital and social capital, we find the pathway of how executives’ military experience influences their information disclosure behavior. Secondly, we theoretically enrich the relevant literature on the factor affecting the stock price crash risk and the impact of executives’ military experience on corporate governance. Finally, this paper has implications for how enterprises in emerging markets to optimize the structure of executive teams.