The influence of non-controlling major shareholder's exit threat on firm's idiosyncratic risk

Abstract

Non-controlling major shareholders can effectively restrain controlling shareholders and management by exit threat, so as to participate in corporate governance. Traditional research holds that the exit threat of non-controlling major shareholders can make the company have a more stable development prospect, but it has not paid enough attention to the hidden dangers. Based on 23,243 samples of Shanghai and Shenzhen A-shares from 2010 to 2021, this paper analyzes the influence of non-controlling major shareholder's exit threat on idiosyncratic risk of enterprises. It is found that the exit threat of non-controlling major shareholders will significantly increase the idiosyncratic risk of enterprises. Overall, exit threat lead to increased idiosyncratic risk. This conclusion is still robust after controlling for endogenous problems. The reason why the exit threat amplifies the idiosyncratic risk is that the idiosyncratic volatility is the market's response to the increased uncertainty of the future return rate of individual stocks, while the high exit threat of non-controlling major shareholders of a company exposes the future uncertainty of the company to investors more. This paper reveals that the threat of exit is the key factor affecting the idiosyncratic risk of firms, which has important reference value for regulators and investors.