Parent company personnel embeddedness and stock price crash risk: evidence from Chinese enterprise groups

PurposeThis study aims to investigate the influence of parent company personnel embedding on the stock price crash risk (SPCR) of listed companies, along with the moderating effect of disparate locations between parent and subsidiary companies and other major shareholders.Design/methodology/approachThis research empirically tests hypotheses based on a sample of listed subsidiaries in China during the period between 2006 and 2021.FindingsOur results demonstrate that personnel embeddedness in the parent company significantly alleviates SPCR in subsidiaries. This effect is even more substantial when the parent and subsidiary companies are in different places. However, other major shareholders in the subsidiary company weaken it. Our additional analysis indicates that, relative to executive embeddedness, director embeddedness exerts a stronger effect on the SPCR of the subsidiary. Mechanism examination reveals that the information asymmetry and the level of internal control (IC) within the subsidiary are significant channels through which the personnel embeddedness from the parent company influences the SPCR of the subsidiary.Originality/valueThis study expands the literature on how personnel arrangements in corporate groups within emerging countries influence SPCR. We have extended the traditional concept of interlocking directorates to corporate groups, thereby broadening the understanding of the governance effects of interlocking directors and executives from a group perspective.