The informal hierarchy of board and stock price crash risk

Abstract

We examine the impact of the clarity of the informal board hierarchy on a firm's stock price crash risk. By analyzing data from Chinese A-shares between 2010 and 2021, we find that: First, there is a positive relationship between the clarity of the informal board hierarchy and stock price crash risk, suggesting that when the board hierarchy is less transparent, it contributes to a higher likelihood of stock price crashes. Second, the above effect is moderated by the level of independence of the supervisory board. When the supervisory board possesses greater autonomy in decision-making, it helps mitigate the above effect.