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Employee treatment and stock price crash risk: evidence from China

Maochuan Wang (School of Economics and Business Administration, Chongqing University, Chongqing, China)
Xixiong Xu (School of Economics and Business Administration, Chongqing University, Chongqing, China)
Siqi Wang (School of Economics and Business Administration, Chongqing University, Chongqing, China)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 19 December 2023

217

Abstract

Purpose

This study aims to examine the impact of employee treatment on stock price crash risk in emerging markets. The study further sheds light on the economic channels and boundary conditions between employee treatment and crash risk.

Design/methodology/approach

This study employs a large-scale archival dataset of Chinese A-share listed firms covering 2010 to 2021. To establish causality, the study leverages multi-way fixed effects, Oster’s test, change regression and instrumental variable methods to alleviate endogeneity concerns.

Findings

The results reveal that employee-friendly treatment leads to a lower crash risk. Moreover, improving internal control quality and enhancing firm reputation appear to be the two plausible economic channels through which employee treatment mitigates crash risk. Cross-sectionally, the documented impact is more evident for human-capital-intensive firms, firms with weaker external monitoring and those operating in fiercely competitive industries.

Originality/value

This study is among the first to show that employee treatment has a favorable consequence for shareholder benefit through reducing crash risk. The study thus adds to the ongoing debate regarding the relationship between employee treatment and shareholder wealth. The study also extends the nascent literature on the role of rank-and-file employees in shaping corporate information landscapes.

Keywords

Acknowledgements

The authors would like to acknowledge the National Natural Science Foundation of China [Grant Number: 71972017], the Chongqing Social Science Planning Project [Grant Number: 2023ZTZD18], the Research on Major Decision-making Consulting in Chongqing [Grant Number: 2023ZB08] and the Graduate Scientific Research and Innovation Foundation of Chongqing [Grant Number: CYB23004] for their financial support.

Citation

Wang, M., Xu, X. and Wang, S. (2023), "Employee treatment and stock price crash risk: evidence from China", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-02-2023-0237

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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