The winner's curse in high-tech enterprise certification: Evidence from stock price crash risk

Min Bai, Shihe Li, Donald Lien*, Chia Feng (Jeffrey) Yu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)

Abstract

Exploiting the High and New Technology Enterprise (HNTE) certification program in China, we find a significant increase in firm-specific stock price crash risk for certified firms relative to non-certified firms. The result holds after a battery of robustness tests. Importantly, we find that the increase in stock price crash risk is concentrated in firms with poor innovation records before receiving HNTE certification, with less innovation improvement after obtaining HNTE certification, with weak external governance, and for state-owned enterprises. Our findings uncover a novel and substantial cost of HNTE certification as it can stimulate strategic bad news hoarding and release, being associated with greater crash risk, especially for firms less likely to engage in fact-based innovation.

Original languageEnglish
Article number102175
JournalInternational Review of Financial Analysis
Volume82
DOIs
Publication statusPublished - Jul 2022

Keywords

  • Certification
  • Corporate innovation
  • High and new technology enterprise
  • Stock price crash risk

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