After the development in the past two decades, institutional investors have already taken an important position in the Chinese securities market; meanwhile, affected by the historical development and the unique institutional environment in China, corporations also hold a majority of shares of Chinese listed companies. As an important economic outcome of institutional stockholding, this paper investigates how the stockholding of institutional investors and corporations in Chinese capital market influences the corporate governance and price variabilityof listed companies.
This paper carries out an empirical study on large sample data to investigate the behavior of institutional stockholding and its possible impact on the securities market. Moreover, this paper sets up a static game model.
According to our findings, in the Chinese securities market, stockholding of major institutional investors increases the stock price crash risk of private listed companies while the relationship between stockholding of institutional investors and the stock price crash risk of state-owned listed companies is not very obvious. As for the heterogeneity of institutional investors, different institutional investors have different impact on stock price crash risk.Different from regular institutional investor stockholding, legal person stockholding reduces the stock price crash risks of listed companies. Under different market situations (“bear market” or “bull market”) and different valuation conditions of listed companies, the relationship between the institutional stockholding and stock price crash risks may reflect different characteristics. The proportion of stockholding has direct impact on the relationship between institutional stockholding and stock price crash risks of listed companies.
This paper has expanded the relevant research on the stock price crash risks, stockholding by institutional investors and corporations and corporate governance based on the information asymmetry and principal-agent theory. Meanwhile, research based on unique Chinese institutional system offers incremental literature for the study of transition economy and institutional economics. The results of this research also indicates that for transition economy such as China, the factor of property right will still greatly influence the behavior of institutional investors, which is a supplement to the property right theory. Surely, this research still has certain limitations in terms of research data, consideration on macro factors and dynamics, etc.
This research has important realistic significance, and provides meaningful reference for the market to understand behavior characteristics of different institutional investors. From the perspective of the management of listed companies, to prevent the great “fall” of the stock price, it is necessary to establishstable and friendly cooperation with the corporate stockholders. External institutional investors should be welcome to adopt the “value investment strategy”. For the regulators of the Chinese securities market, they should further promote institutional investors and develop a variety of institutional investors in addition to the securities investment funds, in order to prevent serious structural disequilibrium of institutional investors.
As a whole, this paper provides relatively significant contribution to the research of stock price crash risks of listed companies. The focus on institutional stockholding is a new perspective, which enriches related literature of stock price crash risks, institutional investor stockholding and legal person stockholding, and enlightens listed companies’ management, regulators of Chinese securities market and individual investors.
Institutional investor stockholding, legal person stockholding, stock price crash risk, market conditions, valua