Employee quality and stock price crash risk

Abstract

ABSTRACT Employees are practitioners of firm activities and play an important role in corporate governance, and their quality will affect stock price crash risk. We investigate the effect of employee quality on stock price crash risk. Using a sample of Chinese-listed firms, we find that employee quality has a significant negative influence on stock price crash risk and the effect is only significant in state-owned enterprises and high-tech firms. The findings are robust to an alternative measure of employee quality and controlling for missing variables and endogeneity. We further find that the effect is achieved by improving internal control quality, therefore, internal control plays a mediating role in employee quality and stock price crash risk. Our study provides new empirical evidence for human capital theory of corporate governance, and also provide implications for monitoring stock price crash risk.