State Ownership, Implicit Government Bailout Guarantee, and Crash Risk: Evidence From China

46 Pages Posted: 1 Feb 2019

See all articles by Mingfa Ding

Mingfa Ding

Lund University - Department of Economics

Zhongda He

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Yuecheng Jia

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Mi Shen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

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Date Written: January 20, 2019

Abstract

Using a large sample of Chinese public firms, this study documents that the government intervention via state ownership can mitigate the stock crash risk. The mitigation effect of state ownership is more pronounced in the crisis periods and in the sample of firms with shares held by central government. Further evidence indicates that high state ownership mitigates the crash risk by deterring the short selling activities. Our empirical results reveal that short sellers especially informed short sellers, view high state ownership as the implicit government bailout guarantee against bankruptcy and voluntarily withdraw shares shorted. The decreased informed short selling activities block the incorporation of bad news.

Keywords: State Ownership, Crash Risk

Suggested Citation

Ding, Mingfa and He, Zhongda and Jia, Yuecheng and Shen, Mi, State Ownership, Implicit Government Bailout Guarantee, and Crash Risk: Evidence From China (January 20, 2019). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3319336 or http://dx.doi.org/10.2139/ssrn.3319336

Mingfa Ding

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Zhongda He

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

Room 807, Academic Hall
39 South College Road, CUFE
Beijing, Beijing 100081
China
86-10-62289266 (Phone)

Yuecheng Jia (Contact Author)

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Mi Shen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

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