Corporate Risk-Taking and Stock Market Reaction: An Empirical Study on the Basis of Stock Price Information Efficiency and Crash Risk


Student thesis: Doctoral Thesis

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Awarding Institution
  • Yuyan GUAN (Supervisor)
  • Gaoliang TIAN (External person) (Supervisor)
Award date6 May 2020


This dissertation investigates the impact of corporate risk-taking on stock price information efficiency and stock price crash risk by adopting the data of China’s A-share market from 2003~2017. Additionally, it also investigates whether internal governance and external information environment may serve as moderating factors for the above relations. The main conclusions of this dissertation are listed below:

First, considered as a bellwether of the real economy, the stock market plays an indicator function of the economic situation. On the one hand, corporate risk-taking implies competitive business strategies and strict regulations, which may improve the disclosure quality and mitigate the frictions in the financial market. On the other hand, the heightened uncertainty associated with corporate risk-taking aggravates the agency conflicts and private information hiding activities, resulting in lower information efficiency as well as a higher likelihood of stock price crashes. The tension underlying draws on a competing theoretical framework. By using multiple empirical methodologies, this dissertation finds that corporate risk-taking is negatively (positively) associated with stock price information efficiency (crash risk). The empirical evidence adds to the line of literature on the economic consequences of corporate risk-taking, as well as the research on the determinants of stock price information efficiency and stock price crash risk.

Second, the existing literature documents that corporate managers are more risk-averse than shareholders because of the lack of risk diversification. Notably, previous studies mainly focus on the ex-ante period, but with few considerations of the ex-post period. In response, this dissertation further indicates that firms with high levels of corporate risk-taking are more likely to engage in opportunistic behaviors, such as earnings manipulation, aggressive tax reporting, and private information hiding actions. Moreover, the relation between corporate risk-taking and stock price information efficiency (crash risk) can be mediated by the aforementioned managerial opportunistic behaviors, thereby extending the application of agency theory to explain corporate risk-taking decisions from the ex-ante period to the ex-post period.

Third, this dissertation further finds that the negative (positive) association between corporate risk-taking and stock price information efficiency (crash risk) can be mitigated by internal governance mechanisms, including board independence, internal control system, as well as external information environments, including investor protection, financial analysts, and high-quality auditors, whereas such associations are more pronounced for firms with overconfident managers. Overall, the findings of this dissertation contribute to the literature on corporate governance, and generate important practical implications for listed firms, investors, and policy-makers to mitigate the negative economic consequences of corporate risk-taking in the stock market.

    Research areas

  • Corporate risk-taking, Stock price information efficiency, Stock price crash risk, Agency conflict, Corporate governance