Corporate relationship spending and stock price crash risk: Evidence from China's anti-corruption campaign

Juncheng Hu, Xiaorong Li*, Keith Duncan, Jia Xu

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review


This study examines whether corporate relationship spending through business entertainment expenses (BEEs) affects future stock price crash risk. Stakeholder theory suggests that expenditure on relationship building with external stakeholders enhances trust, firm reputation, and transparency, potentially lowering future crash risk. However, agency theory suggests that excessive relationship spending is associated with greater information opacity and managerial opportunism, contributing to greater future crash risk. Our results are more aligned with the agency perspective, showing that BEEs relate positively to future crash risk. China’s 2012 anticorruption campaign significantly moderated the effect of BEEs on stock price crash risk, particularly for firms having weak political connections, weak information transparency, and weak external monitoring mechanisms. The positive BEE-crash relation persists after the anticorruption campaign for high financial risk firms.
Original languageEnglish
Article number105758
JournalJournal of Banking and Finance
Early online date23 Jan 2020
Publication statusPublished - 1 Apr 2020


Cite this