Formative experience and stock price crash risk: Evidence from China's "Down to the Countryside" movement.

This study explores the influence of chairpersons' early life experiences during the "Down to the Countryside" movement-a unique social phenomenon in China-on company stock price crash risk. This study uses 2007-2018 data from China's A-share listed companies and a multiple regression analysis model to assess the influence of chairpersons' Down to the Countryside experiences on the stock price crash risk of their corresponding companies. The empirical results demonstrate that chairpersons' "sent-down" experiences shaped their risk-aversion management style, reducing companies' risk-taking capacity. Consequently, this formative experience reduces stock price crash risks and increases company value. Heterogeneity tests on companies with different property rights reveal that chairpersons' sent-down experiences are more pronounced in non-state-owned companies, as against state-owned companies. To alleviate endogeneity issues (e.g., self-selection bias and omitted variables) various endogeneity controls (e.g., propensity score matching, placebo tests, and difference-in-differences (DID) tests) were conducted. The results also persisted in a series of robustness checks. This study provides a new perspective on the relationship between chairpersons' early life experiences and stock price crash risks. The empirical evidence has implications for the recruitment, incentivization, and supervision of chairpersons.