Management geographical proximity and stock price crash risk

Abstract

Purpose

This study provides empirical support for the cultural economics model between executive team and firm performance and offers important implications for policy selection and appointment of managers in China.

Design/methodology/approach

From the perspective of relationship embeddedness, the authors explore the impact of management geographical proximity (GP) on stock price crash risk in China. Using archival data from China's unique dataset about birthplace culture, the authors find that management GP experiences a large increase in corporate stock price crash risk for the period 2009–2018.

Findings

The impact of management GP on stock price crash risk is more pronounced when the company is located in areas with weaker formal legal environment and stronger Confucian culture. Furthermore, the impact has a significant links with firm characteristics such as information transparency, over-investment and tax aggressiveness.

Originality/value

First, the research extends the literature on the empirical determinants of stock price crash risk. These studies focus on formal institution, not on informal institution, such as relational culture. Second, the research provides evidence for economic consequences on relational governance from executive birthplace culture to explore the economic consequences of geographical relational governance but takes stock price crash risk to present executives' behavior strategies and market reaction via exploring asymmetrical variation of market stock price. Finally, the paper provides reference to corporate governance arrangement and executive appointment.

Citation

Jin, X., Liang, S. and Yu, J. (2022), "Management geographical proximity and stock price crash risk", China Finance Review International, Vol. 12 No. 4, pp. 601-622. https://doi.org/10.1108/CFRI-06-2021-0117