Yuan Xie studies whether China’s Crackdown on Corruption Reduced Stock Price Crash Risk
Professor Yuan Xie’s co-authored article, “Does crackdown on corruption reduce stock price crash risk? Evidence from China,” appears in the Summer 2018 edition of Journal of Corporate Finance. The paper examines whether crackdown on political corruption in China affects future stock price crashes. The authors find that firms under prosecuted official jurisdictions experience a significant decrease in crash risk after the crackdown. The results are more pronounced for firms with higher political dependence on governments and for firms with a worse information environment. Moreover, “channel tests” provide direct evidence that crackdown decreases crash risk by reducing political risk and bad news hoarding. Overall, the study offers novel evidence on how crackdown on corruption benefits firms.