Ultimate Ownership, Crash Risk, and Split Share Structure Reform in China

Abstract This study investigates the relationship between ultimate ownership and stock price crash risk for Chinese firms and the impact on this relationship by the implementation of the split share structure reform, which rendered previously non-tradable shares freely tradable. We find that government-controlled firms, especially local ones, have a significantly higher crash risk than privately controlled firms. After the reform, crash risk of all firms decreases significantly, with a greater risk reduction for privately controlled firms than for government-controlled firms. Further evidence demonstrates that government-controlled firms with stronger political incentives tend to have a higher crash risk.