Passageway Business Regulation and Stock Price Crash Risk: A Quasi-Natural Experiment Based on the New Asset Management Rules

This paper uses China’s New Asset Management Rules as the policy shock and tests whether passageway business regulation affects stock price crash risk. The results indicate that treated firms experience a marked decline in crash risk after the regulation. Mechanism tests suggest that this effect is associated with better information disclosure, stronger focus on core operations, and reductions in both explicit and hidden debt. Additional tests document positive short-window market reactions, with stronger effects among firms with greater bad-news hoarding incentives, in regions with more developed financial systems, and among firms with higher capital dependence. The results also hold for both legitimate and regulation-evading passageway business. Overall, the findings provide firm-level evidence that targeted financial oversight is linked to lower downside risk and more disciplined use of financial resources.