Capital Market Consequence of Institutional Investment Constraint: Evidence from the Stock Price Crash Risk in China. Issue 3 (3rd July 2022)

• Record Type: Journal Article
• Authors: Fan, Yunqi; Hu, Guanglei
• Is Part Of: Global economic review. Volume 51:Issue 3(2022)
• Page Start: 232
• Page End: 264
• Publication Date: 2022-07-03
• Subjects: Institutional investment constraints -- crash risk -- predatory trading -- investor information competition; G20 -- G32; International economic relations -- Periodicals; Economic history -- 1990- -- Periodicals; East and West -- Periodicals; 337.05
• DOI: 10.1080/1226508X.2022.2120517
• Languages: English
• ISSNs: 1226-508X

Abstract

ABSTRACT: This study finds that institutional investment constraint increases stock price crash risk. We employ both instrumental variable approach and a quasi-experiment to identify the causal effect. We also find institutions are more likely to sell stocks with stronger institutional investment constraint in response to firm's bad news. In addition, the positive relationship between institutional investment constraint and crash risk is less pronounced for institutions of larger size and better past performance. These results are consistent with managerial catering explanation rather than career concern and soft information explanations. Finally, the channel analysis shows that the effect of institutional investment constraint on crash risk is mediated by predatory selling and investor information competition.