Capital Market Consequence of Institutional Investment Constraint: Evidence from the Stock Price Crash Risk in China

This study finds that institutional investment constraint increases stock price crash risk. We employ both instrumental variable approach and a quasi-experiment to identify the causal effect. We also find institutions are more likely to sell stocks with stronger institutional investment constraint i...

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Bibliographic Details
Published inGlobal economic review Vol. 51; no. 3; pp. 232 - 264
Main Authors Fan, Yunqi, Hu, Guanglei
Format Journal Article
LanguageEnglish
Published Abingdon Routledge 03.07.2022
Taylor & Francis Ltd
Subjects
Capital markets
crash risk
Institutional investment constraints
Institutional investments
investor information competition
predatory trading
Prices
Risk
Stock exchanges
Stocks
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Summary:This study finds that institutional investment constraint increases stock price crash risk. We employ both instrumental variable approach and a quasi-experiment to identify the causal effect. We also find institutions are more likely to sell stocks with stronger institutional investment constraint in response to firm's bad news. In addition, the positive relationship between institutional investment constraint and crash risk is less pronounced for institutions of larger size and better past performance. These results are consistent with managerial catering explanation rather than career concern and soft information explanations. Finally, the channel analysis shows that the effect of institutional investment constraint on crash risk is mediated by predatory selling and investor information competition.
ISSN:1226-508X
1744-3873
DOI:10.1080/1226508X.2022.2120517