The Influence Of Executives’ Shareholding On The Risk Of Stock Price Crash

Since 2018,as China’s economic growth has slowed down,the financial market has continued to weaken,and the company’s stock price crash has occurred.The skyrocketing stock market will seriously reduce the vitality of a country’s economy and undermine the stable operation of the economy.At the same time,the sharp decline in stocks will cause investors’ panic,which will have a great negative impact on investors’ property and psychology.Generally speaking,the company’s management will not announce the negative news immediately,but tend to hide the "bad news" as much as possible for their own benefit.If the negative news is hidden for too long and the quantity is accumulated too much,it may be revealed once,causing the stock price to fall rapidly,that is,the stock price collapses.One of the reasons why company executives hide bad news is the agency problem,the interests of managers and company shareholders are often inconsistent,let the management of the company often makes decisions that damage shareholders in the perspective of maximizing their own interests.In order to alleviate the agency problem,the company usually gives executives a certain number of shares,making it a part of the shareholders,thereby reducing the self-interest of the company’s management,making it more decision-making from the perspective of the company’s long-term development.The promulgation of the"Measures for the Administration of Equity Incentives of Listed Companies" at the end of 2005 made equity incentives one of the effective ways for domestic companies to reduce agency problems.As a result,the number of companies that carry out equity incentives has increased year by year,and the proportion of executives has increased.In 2005,the average shareholding ratio of listed company management was only 0.49%.In 2017,this proportion has risen to 8.67%,and equity incentives have become an important way for listed companies to motivate management.However,whether executives hold shares is an effective way for incentive,there are still many controversies in the academic world.Some scholars believe that executives’ shareholdings can alleviate the conflict between the company’s management and shareholders,that is,there is a convergence effect of interests,which makes the agency costs decline;some scholars believe that executives’shareholdings have a defensive effect.The increase in executives’ holdings will strengthen the management’s ability to control the company,making it possible for executives to open the company more unscrupulously,further exacerbating the company’s agency problems;another scholars believe that there is a range effect between executive shareholding and agency costs,and there are different relationships in different intervals.It can be seen that there is still some doubt about whether executives can reduce the risk of stock price collapse.Based on this,this paper studies the influence of executive stock ownership of A-share listed companies on the stock price collapse risk through the combination of theory and empirical methods,which is of great significance both in theory and practice.This paper takes the 2007-2017 Shanghai-Shenzhen A-share listed company as a sample,and empirically studies the impact of executive stock ownership on the stock price collapse risk through nonlinear multiple regression analysis,group regression and Hackman two-step method.The study found that:(1)Because the benefits and costs of executives hiding "bad news" depend on their shareholding level,there is an inverted "U" relationship between executive shareholding and stock price collapse risk.In general,the rise in executive stocks has reinforced their motives of hiding "bad news" and exacerbated the risk of stock price crashes,while the“convergence of interest effects”will appear when executives’shareholdings exceed a certain threshold(about 30%),it will weaken the motives for executives to hide "bad news”and the negative effects will be alleviated.(2)The improvement of the equity balance degree will help strengthen the supervisory role of shareholders on executives and weaken the incentives for executives to hide "bad news".(3)Institutional shareholding did not increase the supervisory effect of the company’s management.Instead,it caused the company’s executives to collude with the investment institutions and promoted the hiding of "bad news" by the executives.(4)Using EPS for grouping,high EPS means that executives hide "bad news" can bring higher returns,so executives’ shareholdings have a stronger impact on stock price crash risk.Using stock price for grouping,low stock price means that manager can hide "bad news" with lower loss,at this time there is only a linear relationship between executive holdings and the risk of stock price collapse.The main contributions of this paper are as follows:First,the existing literature rarely studies the risk of stock price collapse from the perspective of executives holding shares.This paper starts from the executive stock holdings and introduces a nonlinear model to explore its impact on the stock price collapse risk,expanded research in related fields.Second,the impact of management characteristics or behavior on the company has always been the focus of academic attention.The important proposition of whether executives can reduce agency costs has still not reached a consensus conclusion.This paper examines the governance effects of executive stock holdings through the perspective of stock price crashes and provides empirical evidence for answering the above questions.Third,with the development of China’s capital market,equity incentives have become an important way for employees of listed companies to motivate.The research in this paper has a guiding role for the company to formulate equity incentive plans.