The Role of Internal Control on the Impact of Common Institutional Ownership on Stock Price Crash Risk —— Evidence from China's A-share Market

Abstract

Stock price crash risk poses a threat to the stability of emerging capital markets, and this is particularly prominent in China’s A-share market—characterized by both weak investor protection mechanisms and dynamic institutional changes . Given this context, this study takes 1,318 Chinese A-share non-financial listed firms from 2013 to 2022 as the sample and comprehensively applies the System Generalized Method of Moments (System GMM), Bai-Perron multiple structural break test, Error Correction Model, and Granger causality test to explore the stock price crash risk-mitigating effect of common institutional ownership and the moderating role of internal control quality . The study finds that there are two significant structural breakpoints in the sample period (end of 2018 and mid-2020), dividing the research period into three phases; CIO’s risk-mitigating effect strengthens significantly phase by phase, and IC’s complementary moderating role also intensifies synchronously with institutional improvement. Additionally, the ECM verifies a stable long-term equilibrium relationship among the three variables, with the system converging rapidly to equilibrium after short-term deviations. Furthermore, the Granger causality test shows that CIO only becomes a significant Granger cause for suppressing crash risk after 2019, and IC further reinforces this causal chain. Breakpoint sensitivity tests, alternative indicator tests, and alternative model tests all confirm the robustness of the conclusions. This study extends the institutional complementarity theory, addresses the limitations of previous static analyses, and provides practical insights for regulatory authorities to seize the window of institutional reform and optimize market governance.