Corporate board reforms around the world and stock price crash risk
Siqi Li, Department Chair and Professor of Accounting, Ernst & Young Faculty Research Fellow
Jinshuai Hu, Siqi Li, Alvaro G. Taboada, Feida Zhang, Corporate board reforms around the world and stock price crash risk, Journal of Corporate Finance, Volume 62, 2020, 101557, ISSN 0929-1199, https://doi.org/10.1016/j.jcorpfin.2020.101557.
Abstract
We examine the impact of corporate board reforms around the world on stock price crash risk. Using a sample of firms in 41 economies that passed major board reforms between 1990 and 2012, we find that board reforms are associated with a significant reduction in crash risk of about 13%. The effect of reforms on crash risk is stronger among firms with more severe ex ante agency problems. Our analysis further suggests that board reforms reduce crash risk by improving financial transparency and enhancing investment efficiency. In sum, our findings are consistent with the notion that board reforms improve board oversight and mitigate agency problems.