Do tainted outside directors induce stock price crash risk?: evidence from China

• Quan Zeng ^[1] ; Qi Zhang ^[1]
  1. [1] Xiamen University

     Xiamen University

     China

     
• Localización: Revista española de financiación y contabilidad, ISSN 0210-2412, Vol. 54, Nº 3, 2025, págs. 249-283
• Idioma: inglés
• DOI: 10.1080/02102412.2025.2497649
• Texto completo no disponible (Saber más ...)
• Resumen

  • This study examines the impact of tainted outside directors (TODs) on stock price crash risk and investigates how high-quality audits moderate this relationship. TODs are outside directors previously penalized by regulators for corporate misconduct but subsequently hired by other listed firms. Analyzing a sample of Chinese firms from 2005 to 2022, we find that firms with TODs exhibit significantly higher stock crash risk than those without TODs. Moreover, high-quality audits mitigate this positive relationship. The channel test indicates that TODs induce lax monitoring, thereby elevating crash risk. These findings are robust to various tests and addressing endogeneity. The adverse effect of TODs on stock crash risk is stronger for firms with poor governance (low governance index, weak internal control, low analyst coverage, and less media coverage). Finally, stock price crashes intensify with the severity of professional taintedness and become more serious when TODs serving as committee leaders.

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