Affiliation:
1. Nanjing University
2. City University of Hong Kong and University of Waterloo
3. National University of Singapore and Shanghai Lixin University of Accounting and Finance
4. Central University of Finance and Economics
Abstract
ABSTRACT
Managers of China's state-owned firms work in a closed pyramidal managerial labor market. They enjoy non-transferable benefits if they choose to stay within this system. The higher up are they in this labor market hierarchy (their political ranks), the fewer are their outside employment opportunities. Due to career and wealth concerns, they are cautious and risk-averse when managing firms. We examine the effect of managers' political ranks on firms' stock price crash risk and find a negative association. This association mainly exists in firms with younger managers and managers with shorter tenure. Further, this effect is only significant in regions with weak market forces, in firms without foreign investors, without political connections, and during periods with no local government leaders' or managers' political promotions. We conclude that the political ranking system reduces the stock price crash risk.
JEL Classifications: G30; J33.
Publisher
American Accounting Association
Subject
Economics and Econometrics,Finance,Accounting
Cited by
148 articles.
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