Corporate Site Visits and Stock Price Crash Risk: The Role of Institutional Investors’ Knowledge Acquisitions

• Published in: Journal of the knowledge economy 2024-06, Vol.15 (2), p.9082-9114
• Main Authors: Lu, Jing, Cao, Guohua, Lin, Chuan, Sindakis, Stavros, Showkat, Saloome
• Format: Article
• Language: English
• Subjects: Corporate governance; Economic Policy; Economics; Economics and Finance; Entrepreneurship; Institutional investments; Investors; Knowledge acquisition; R & D/Technology Policy; Stock prices
• ISSN: 1868-7873; 1868-7865; 1868-7873
• DOI: 10.1007/s13132-023-01457-9

This paper investigates the impact of institutional investors’ knowledge acquisition through corporate site visits (IICSV) on stock price crash risk (SPCR) for firms with and without SPCR from a new perspective. We use data from Chinese listed firms and analyze the impact of IICSV on SPCR while considering the difference in visiting objects. Our empirical results show that the impact of IICSV differs across different firms. For firms with SPCR, IICSV enhances SPCR, while for firms without SPCR, IICSV significantly reduces SPCR. We further examine the underlying mechanisms and find that the impact of IICSV is mainly based on information channels and is more pronounced for private firms, non-manufacturing firms, and firms with tradable institutional investors. We also explore the impact of IICSV under different conditions and find that over-investment reduces the governance effect. Based on our findings, we suggest that the behavior of institutional investors during IICSV should be limited and supervised to ensure suitable disclosure of visiting information and stop collusion between institutional investors and managers. We highlight the difference in institutional investors’ behavior and strategy at different firms, which should be considered in future research. Additionally, the research could focus on the economic consequences of IICSV and its determinants, such as the reverse causality between IICSV and information disclosure. Our study contributes to the literature on institutional investors’ impact on corporate governance and provides insights for regulators and investors.