Industry Competition Structure, Market Power, and Stock Price Crash Risk

Abstract

Abstract This paper analyses the relationship between competition (industry competition structure, market power, excessive size) and stock price crash risk in Chinese A-share listed companies. We find that (1) industry concentration or monopoly is positively related with stock price crash risk; (2) a balanced industry competition structure helps to mitigate stock price crash risk; and (3) excessive firm size (firm size adjusted by industry average) has moderating effects on the relation between market power and stock price crash risk. The empirical results of this study suggest that large companies should be prevented from using their market power to increase their monopoly so as to avoid competition imbalance.