WANG Huacheng,etc:Investor Protection and Stock Price Crash Risk

Abstract  Stock price crash severely harms investors' interests, and hampers the development of capital markets. Hence more and more literature in finance has focused on the determinants of stock price crash risk. Using a sample of Chinese listed firms during 2001-2012, we investigate the relation between regional investor protection and stock price crash risk. We find that, with the improvement of the regional investor protection, the company stock price crash risk significantly decreased; the negative relationship between stock price crash risk and regional investor protection is more pronounced for firms with poor performance or low-growth. After conducting a series of robustness tests, this conclusion is still valid. Further analyses show that the inhibiting effect of investor protection on the stock price crash risk can get realized by reducing corporations' positive earnings. This study not only broadens the horizons of the research of stock market crash risk, but also provides a basis for regulators' decision making in enhancing investor protection.

Key words： Stock Price Crash Risk    Investor Protection    Capital Markets    Institutional Environment

Source: Finance & Trade Economics , No.10, 2014