Social trust, corporate governance, and stock price crash risk: Evidence from China

Abstract

Abstract We empirically examine the relationship between social trust and stock price crash risk using data for Chinese listed companies from 2003 to 2016. Social trust reduces concealing of bad news by managers, thereby lowering stock price crash risk. We also explore the interaction between social trust and other corporate governance mechanisms, including incentive and monitoring mechanisms, and its effect on stock price crash risk. We find that the effect of social trust is more pronounced in firms with little managerial shareholding and a small proportion of independent directors, indicating that social trust strengthens corporate governance when other internal mechanisms are weak.