Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China

Fusheng Wang; Jieqiong Hu

doi:doi:10.11648/j.ajtab.20200604.13

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Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China

Fusheng Wang, Jieqiong Hu

Published in American Journal of Theoretical and Applied Business (Volume 6, Issue 4)

Received: 31 October 2020 Accepted: 11 November 2020 Published: 19 November 2020

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Abstract

Stock price crash is the extreme negative values of price distribution which can make investors suffer from huge losses and harm the stability of security market. Because of the heavy consequences, how to avoid stock price crash is a topic of significant importance. According to the “bad news hoarding” theory, transparency is a key determinant to restrain stock price crash risk. This is because transparent firms can fairly and comprehensively transfer information to investors, thus reduce the information asymmetry between the two parties. Internal control is an intergraded institutional arrangement and aims at improving reporting quality. In theory, internal control plays a role in impacting transparency and further affects stock price crash risk. Selecting companies listed on China’s main board from 2008 to 2019 and conducting mediating effect tests, this paper explores the mechanism on how internal control effectiveness influences stock price crash risk. Findings show that: (1) internal control effectiveness is negatively correlated to stock price crash risk; (2) internal control effectiveness is positively correlated to transparency; (3) transparency is negatively related to stock price crash risk; and (4) internal control effectiveness has a partial mediating effect on the relationship between internal control effectiveness and stock price crash risk. The findings indicate that effective internal control can decrease stock price crash risk via enhancing transparency. This paper extends extant literature by investigating the mechanism on how internal control effectiveness affects stock price crash in the emerging market of China.

Published in	American Journal of Theoretical and Applied Business (Volume 6, Issue 4)
DOI	10.11648/j.ajtab.20200604.13
Page(s)	66-71
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Internal Control Effectiveness, Stock Price Crash Risk, Transparency

References

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Fusheng Wang, Jieqiong Hu. (2020). Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. American Journal of Theoretical and Applied Business, 6(4), 66-71. https://doi.org/10.11648/j.ajtab.20200604.13

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Fusheng Wang; Jieqiong Hu. Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. Am. J. Theor. Appl. Bus. 2020, 6(4), 66-71. doi: 10.11648/j.ajtab.20200604.13

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AMA Style

Fusheng Wang, Jieqiong Hu. Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. Am J Theor Appl Bus. 2020;6(4):66-71. doi: 10.11648/j.ajtab.20200604.13

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@article{10.11648/j.ajtab.20200604.13,
  author = {Fusheng Wang and Jieqiong Hu},
  title = {Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {6},
  number = {4},
  pages = {66-71},
  doi = {10.11648/j.ajtab.20200604.13},
  url = {https://doi.org/10.11648/j.ajtab.20200604.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20200604.13},
  abstract = {Stock price crash is the extreme negative values of price distribution which can make investors suffer from huge losses and harm the stability of security market. Because of the heavy consequences, how to avoid stock price crash is a topic of significant importance. According to the “bad news hoarding” theory, transparency is a key determinant to restrain stock price crash risk. This is because transparent firms can fairly and comprehensively transfer information to investors, thus reduce the information asymmetry between the two parties. Internal control is an intergraded institutional arrangement and aims at improving reporting quality. In theory, internal control plays a role in impacting transparency and further affects stock price crash risk. Selecting companies listed on China’s main board from 2008 to 2019 and conducting mediating effect tests, this paper explores the mechanism on how internal control effectiveness influences stock price crash risk. Findings show that: (1) internal control effectiveness is negatively correlated to stock price crash risk; (2) internal control effectiveness is positively correlated to transparency; (3) transparency is negatively related to stock price crash risk; and (4) internal control effectiveness has a partial mediating effect on the relationship between internal control effectiveness and stock price crash risk. The findings indicate that effective internal control can decrease stock price crash risk via enhancing transparency. This paper extends extant literature by investigating the mechanism on how internal control effectiveness affects stock price crash in the emerging market of China.},
 year = {2020}
}

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TY  - JOUR
T1  - Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China
AU  - Fusheng Wang
AU  - Jieqiong Hu
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.ajtab.20200604.13
DO  - 10.11648/j.ajtab.20200604.13
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 66
EP  - 71
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20200604.13
AB  - Stock price crash is the extreme negative values of price distribution which can make investors suffer from huge losses and harm the stability of security market. Because of the heavy consequences, how to avoid stock price crash is a topic of significant importance. According to the “bad news hoarding” theory, transparency is a key determinant to restrain stock price crash risk. This is because transparent firms can fairly and comprehensively transfer information to investors, thus reduce the information asymmetry between the two parties. Internal control is an intergraded institutional arrangement and aims at improving reporting quality. In theory, internal control plays a role in impacting transparency and further affects stock price crash risk. Selecting companies listed on China’s main board from 2008 to 2019 and conducting mediating effect tests, this paper explores the mechanism on how internal control effectiveness influences stock price crash risk. Findings show that: (1) internal control effectiveness is negatively correlated to stock price crash risk; (2) internal control effectiveness is positively correlated to transparency; (3) transparency is negatively related to stock price crash risk; and (4) internal control effectiveness has a partial mediating effect on the relationship between internal control effectiveness and stock price crash risk. The findings indicate that effective internal control can decrease stock price crash risk via enhancing transparency. This paper extends extant literature by investigating the mechanism on how internal control effectiveness affects stock price crash in the emerging market of China.
VL  - 6
IS  - 4
ER  -

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Author Information

Fusheng Wang

School of Management, Harbin Institute of Technology, Harbin, China
Jieqiong Hu

School of Management, Harbin Institute of Technology, Harbin, China

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APA Style

Fusheng Wang, Jieqiong Hu. (2020). Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. American Journal of Theoretical and Applied Business, 6(4), 66-71. https://doi.org/10.11648/j.ajtab.20200604.13

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ACS Style

Fusheng Wang; Jieqiong Hu. Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. Am. J. Theor. Appl. Bus. 2020, 6(4), 66-71. doi: 10.11648/j.ajtab.20200604.13

Copy | Download

AMA Style

Fusheng Wang, Jieqiong Hu. Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China. Am J Theor Appl Bus. 2020;6(4):66-71. doi: 10.11648/j.ajtab.20200604.13

Copy | Download

@article{10.11648/j.ajtab.20200604.13,
  author = {Fusheng Wang and Jieqiong Hu},
  title = {Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {6},
  number = {4},
  pages = {66-71},
  doi = {10.11648/j.ajtab.20200604.13},
  url = {https://doi.org/10.11648/j.ajtab.20200604.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20200604.13},
  abstract = {Stock price crash is the extreme negative values of price distribution which can make investors suffer from huge losses and harm the stability of security market. Because of the heavy consequences, how to avoid stock price crash is a topic of significant importance. According to the “bad news hoarding” theory, transparency is a key determinant to restrain stock price crash risk. This is because transparent firms can fairly and comprehensively transfer information to investors, thus reduce the information asymmetry between the two parties. Internal control is an intergraded institutional arrangement and aims at improving reporting quality. In theory, internal control plays a role in impacting transparency and further affects stock price crash risk. Selecting companies listed on China’s main board from 2008 to 2019 and conducting mediating effect tests, this paper explores the mechanism on how internal control effectiveness influences stock price crash risk. Findings show that: (1) internal control effectiveness is negatively correlated to stock price crash risk; (2) internal control effectiveness is positively correlated to transparency; (3) transparency is negatively related to stock price crash risk; and (4) internal control effectiveness has a partial mediating effect on the relationship between internal control effectiveness and stock price crash risk. The findings indicate that effective internal control can decrease stock price crash risk via enhancing transparency. This paper extends extant literature by investigating the mechanism on how internal control effectiveness affects stock price crash in the emerging market of China.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Internal Control Effectiveness and Stock Price Crash Risk: Evidence from China
AU  - Fusheng Wang
AU  - Jieqiong Hu
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.ajtab.20200604.13
DO  - 10.11648/j.ajtab.20200604.13
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 66
EP  - 71
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20200604.13
AB  - Stock price crash is the extreme negative values of price distribution which can make investors suffer from huge losses and harm the stability of security market. Because of the heavy consequences, how to avoid stock price crash is a topic of significant importance. According to the “bad news hoarding” theory, transparency is a key determinant to restrain stock price crash risk. This is because transparent firms can fairly and comprehensively transfer information to investors, thus reduce the information asymmetry between the two parties. Internal control is an intergraded institutional arrangement and aims at improving reporting quality. In theory, internal control plays a role in impacting transparency and further affects stock price crash risk. Selecting companies listed on China’s main board from 2008 to 2019 and conducting mediating effect tests, this paper explores the mechanism on how internal control effectiveness influences stock price crash risk. Findings show that: (1) internal control effectiveness is negatively correlated to stock price crash risk; (2) internal control effectiveness is positively correlated to transparency; (3) transparency is negatively related to stock price crash risk; and (4) internal control effectiveness has a partial mediating effect on the relationship between internal control effectiveness and stock price crash risk. The findings indicate that effective internal control can decrease stock price crash risk via enhancing transparency. This paper extends extant literature by investigating the mechanism on how internal control effectiveness affects stock price crash in the emerging market of China.
VL  - 6
IS  - 4
ER  -

Copy | Download