The Stabilizing Spillover: State-Owned Capital Acquisitions Save Industry-Wide Crash Risk

Abstract

State-owned capital acquisition serves as a critical and prevalent instrument for governments to address systemic financial crises. Most studies concentrate on its direct impact on target firms yet rarely explore its spillover effects and transmission mechanisms in stabilizing markets. This paper examines this issue by utilizing an exogenous event in which the Chinese government launched state-owned capital acquisitions to alleviate the equity pledge crisis in the capital market. Using a triple difference method(DDD) with a sample of listed private firms from 2014 to 2021, we find that state-owned capital acquisitions of enterprises with a high equity pledge ratio significantly reduce stock price crash risk of their peer firms. These impacts are driven by the signaling effect of state-owned capital acquisitions, which encourage peer firms to improve information quality and investors to reduce investment disagreement. However, these stabilizing spillovers come at the cost of increased stock price synchronicity, suggesting weaken information efficiency in intervened industries. The study reveals the dual impacts of government intervention in the stock market risk mitigation and loss of information efficiency, and provides policy implications for deploying state-owned capital tools during crises.

Keywords: State-Owned Capital Acquisitions, Spillover Effect, Equity Pledge Crisis, Stock Price Crash Risk, Peer firms