Corporate Philanthropy and Stock Price Crash Risk: Evidence from China

How to mitigate stock price crash risk has become a focus in the theoretical and practical fields. Building on the work of Kim et al. (J Bank Finance, 43:1-13, 2014b), this paper investigates the relation between corporate philanthropy and crash risk under the unique Chinese institutional background. The results show that both state ownership and the 2005 split share reform attenuate the mitigating effect of corporate philanthropy on crash risk. Specifically, the negative relation between corporate philanthropy and crash risk is less pronounced for state-owned enterprises than for non-state-owned enterprises, and it is also less pronounced after firms accomplish the split share reform. Further, this effect is more pronounced for firms with greater financial risks and poorer performance. Our paper contributes to the growing literature on the determinants of stock price crash risk and the economic consequences of corporate philanthropy. It also offers useful guidance to firms that are seeking to reduce stock price crash risk in emerging markets.