Corporate Pyramids and Stock Price Crash Risk: Evidence from China
This paper examines the impact of corporate pyramids on the stock price crash risk of listed firms in China. Our results show that, first, the pyramidal layer of state owned enterprises (SOEs) can reduce stock price crash risk through the three channels of improving financial statement transparency, increasing accounting conservatism, and decreasing overinvestment. Second, the greater the related party transactions, the weaker the negative relation between the pyramidal layer and crash risk, while this negative relation is strengthened by Hong Kong cross listing. Further analysis shows that the corporate pyramidal layer of SOEs can also decrease stock price synchronicity. For non state owned enterprises (NSOEs) we find that there is an inverse U shaped relationship between the corporate pyramidal layer, crash risk, and stock price synchronicity. These findings have important policy implications in promoting the sound and stable development of the capital market in China.