7. Conclusion
Using a sample of 11,427 firm-year observations for Chinese firms from 2000 to 2014, we find that stronger ownership structure and audit quality are negatively associated with stock price crash risk. The findings are consistent across two different crash risk measures, as well as with different aggregate and component measures of ownership structure and audit quality, and these relationships are stronger after the IFRS reforms than before them. Board structure, on the other hand, does not seem to be significantly associated with crash risk. These findings imply that two of our three broad measures of corporate governance reduce agency costs and information asymmetry. The difference in predictive value between ownership structure and board structure echoes findings for U.S. listed companies (Andreou et al., 2016) and provides some evidence to support Desender’s (2009) suggestion that ownership structure is a higherorder feature of governance than the board of directors.
Our findings are of particular importance to Chinese regulators and investors. Stock price crashes have significant effects on shareholder welfare and the Chinese economy, so Chinese regulators should continue to improve and reform the audit profession and capital markets to reduce the risk of future stock crashes. Low crash risk is important to the stability of the capital markets, and investors, especially those who are more risk averse, prefer capital markets with lower uncertainty. With the international capital markets becoming more global and integrated, a lessened risk of stock price crash in China may help stabilize capital markets in other countries as well. The results of this paper may have similar implications for markets in other developing countries.
