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

doi:10.1016/j.irfa.2022.102175

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

Department of Finance

Research output: Contribution to journal › Article › peer-review

17 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 language	English
Article number	102175
Journal	International Review of Financial Analysis
Volume	82
DOIs	https://doi.org/10.1016/j.irfa.2022.102175
Publication status	Published - Jul 2022

Keywords

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

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10.1016/j.irfa.2022.102175

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

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.",

keywords = "Certification, Corporate innovation, High and new technology enterprise, Stock price crash risk",

author = "Min Bai and Shihe Li and Donald Lien and Yu, {Chia Feng (Jeffrey)}",

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year = "2022",

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AU - Yu, Chia Feng (Jeffrey)

PY - 2022/7

Y1 - 2022/7

N2 - 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.

AB - 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.

KW - Certification

KW - Corporate innovation

KW - High and new technology enterprise

KW - Stock price crash risk

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

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Keywords

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