Abstract
Using the sample of companies listed on Chinese GEM between 2009 and 2015, we examines the impact of government subsidy on companies’ future stock price crash risk and explores how the earning information opacity moderates the relation between government subsidy and crash risk. We find that: 1) the government subsidies for the listed companies increase their crash risk; 2) the firms with higher information opacity are exposed to higher stock price crash risk; 3) considering the cross effect of opacity and government subsidy, the positive correlation between government subsidy and crash risk is weakened under the high information opacity environment. With further analysis, we find that that government subsidy dominates the earning management level of Jones model while measuring firm’s information opacity. This paper not only enriches the study of external influencing factors of crash risk, but also broadens the study of government subsidy efficiency and provides a new decision basis for the investors to recognize the firms’ earning information quality.
Highlights
In recent years, stock markets are exposed to sharp fall frequently
We investigate whether government subsidy is associated with future stock price crash risk
Using a large sample of companies listed on Chinese GEM from the years 2009 to 2015, we find robust evidences that the government subsidy is positively related to oneyear ahead stock price crash risk
Summary
Stock markets are exposed to sharp fall frequently. Late in June 2015, thousands of shares in Chinese stock market fell by 10%, the maximum allowed in one day, the SH index fell nearly 1000 points and GEM index shrank for more than 25%. Some explore the impact factors on the stock price crash risk from the company’s internal characteristics, such as the disclosure of internal control information (Ye Kangtao et al, 2015), the shareholding ratio of institutional investors (Cao Feng et al, 2015), the ownership of large shareholders (Wang Huacheng et al, 2015) and overinvestment (Jiang Xuanyu & Xu Nianxing, 2015). Using the sample of the GEM listed companies which received government grants between 2009 and 2014, we discuss the effects of government subsidy on the GEM stock price crash risk. This paper studies the impact of government subsidy on the company’s stock price crash risk. This study shows that government subsidy dominates this common proxy, which provides a new way to measure the opacity of information.
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