Cross-shareholding network structure and corporate stock price crash risk — Evidence from capital market

The increasingly complex network of cross-holding among listed companies makes it easier for enterprises to acquire information and resources in terms of risk sharing. Nonetheless, the transmission mechanism as to how this network exerts an effect in crash risk of stock price is not obvious. In this paper, we investigate how the ownership network structure influences corporate stock crash price risks by using the Chinese stock market data from 2007 to 2021. It is unraveled that being in the center of the network brings about synergistic governance advantage. Corporations in the core can partially offset the asymmetric information between board and manager through advantages in information, resources, and reputation. They are capable of dealing with negative information withheld by the managers so as to alleviate the crash risk of stock price. This result holds under a series of robustness check. We further show that property ownership and regional development heterogeneity do not affect the fact that equity network structure reduces the risk of stock crash, yet this reduction effect is more pronounced in nonstate-owned enterprises and firms in less developed areas. This paper corroborates that the complicated network of cross shareholding in modern enterprises helps improve the internal corporate governance, extends and deepens the research in the factors that lead to equity price risks. © 2024 Systems Engineering Society of China. All rights reserved.