Family Control and Crash Risk in East Asian Firms: The Mediating Role of Opacity

This study examines family control's direct and indirect impacts (mediated by opacity) on crash risk in East Asian firms. We hypothesize that family control can mitigate agency problems of bad news hoarding due to increasing firm opaqueness. We chose six East Asia countries as the research sample due to their unique features that differ from developed countries, such as relatively weaker investor protection and higher earnings management practices that might positively contribute to firm opaqueness. Meanwhile, East Asian firms are also characterized by more concentrated ownership of family shareholders. Our research sample is 4,847 publicly listed firms (19,681 firm-year observations) in Hong Kong, Indonesia, Malaysia, Singapore, South Korea, and Taiwan from 2014 to 2019. This study primarily employs pooled OLS regression to test the hypotheses. As a robustness test, we conduct Fama-MacBeth regression to address the time-invariant property of family control measures and unobserved individual firm heterogeneity. This study finds robust results that family control negatively impacts crash risk, where this relationship is partly mediated by opacity. Therefore, we might argue that family control alleviates agency problems of bad news hoarding among East Asian firms.