Independent director network, agency costs and stock price crash risk

• Published in: Economic research - Ekonomska istraživanja Vol. 36; no. 2
• Main Authors: Gong, Xiao-Li, Li, Yi-Wei, Lu, Jin-Yan, Feng, Yong-Kang
• Format: Journal Article Paper
• Language: English
• Published: Pula Routledge 10.07.2023; Taylor & Francis Ltd; Taylor and Francis Group i Sveučilište Jurja Dobrile u Puli, Fakultet ekonomije i turizma Dr. Mijo Mirković
• Subjects: Capital markets; Companies; Corporate governance; Directors; Economic theory; Independent director network; Interconnections; large shareholder's tunnelling; Network centrality; Ownership; principal-agent problem; Risk reduction; Social networks; stock price crash risk; Stock prices; Stockholders
• ISSN: 1331-677X; 1848-9664
• DOI: 10.1080/1331677X.2023.2177697

It is of great significance to improve the corporate governance structure to study whether independent directors play the role of 'vase' in the governance of listed companies. Based on the social network theory, this article constructs the social network formed by interlocking independent directors and examines the influence of independent director network on stock price crash risk. The mechanism test analyses the mediating effect of principal-agent problem and large shareholder's tunnelling on stock price crash risk. The empirical research shows that the higher the network centrality of the company's independent directors, the lower the stock price crash risk. The independent director network can restrain the company's stock price crash risk by reducing two types of agency costs. Further research finds that the influence of independent director network on stock price crash risk is more pronounced in companies with unreasonable ownership structure, poor internal governance and weak external supervision. The research conclusions have important implications for listed companies to reduce the risk of stock price crash and maintain the stability of the capital market.