The Non-Controlling Shareholders’ Activism and Stock Price Crash Risk: Evidence from Chinese Listed Manufacturing Companies

Purpose Cases in which controlling shareholders expropriate the rights and interests of other shareholders frequently appear in China. Thus, the public advocates that non-controlling shareholders should actively participate in corporate decision-making. However, whether non-controlling shareholders’ participation in decision-making has a positive impact on enterprises has not reached a consistent conclusion.Design/methodology/approach The regression analysis is based on a large sample of Chinese listed manufacturing companies to test the effective supervision and catering effect hypotheses. The potential endogeneity problems are mitigated by introducing instrument variables and propensity score matching estimations. Several mechanism analyses are conducted to determine the factors that influence non-controlling shareholders’ activism and stock price crash risk.Findings The results indicate a significant negative relationship between non-controlling shareholders’ activism and stock price crash risk, supporting the effective supervision hypothesis. The negative relationship is more significant for non-state-owned, worse performing, non-cross-listed enterprises and enterprises audited by non-Big-Four accounting firms. The mechanism analysis shows that the activism of non-controlling shareholders for participating in decision-making reduces stock price crash risk by alleviating the agency problem between managers and controlling shareholders and restraining the tunneling behavior of controlling shareholders.Originality/value This study deepens the research on the factors influencing stock price crash risk and helps understand the role of non-controlling shareholders in corporate governance. It is significant in understanding how stock price crash risk can be presented and healthy development of the capital market can be promoted in emerging market countries.