Restricted Equity Incentive and Stock Price Crash Risk: Evidence from China A-share Listed Companies

This study takes China A-share listed companies in 2012-2022 as samples to test the impact of restricted equity incentives on the risk of stock price crash. Using the two-way fixed effect and DID method, we find that the implementation of restricted equity incentive significantly increases the risk of stock price collapse, which can be measured by negative skewness coefficient (NCSKEW) and bottom-up volatility (DUVOL). After parallel trend test, tendency score matching (PSM-DID) and including lagging dependent variables, the baseline results are still robust, and the effects are dynamically accumulated after implementation. Heterogeneity analysis shows that this effect is more obvious in state-owned enterprises, large enterprises, high-growth enterprises, enterprises with concentrated ownership and enterprises with higher profits. These findings show that restrictive equity incentives may aggravate the short-term behavior of management and the hoarding of bad news, thus increasing the possibility of collapse. This study contributes to the literature of equity incentives and provides enlightenment for corporate governance and regulatory policies in emerging markets.