Seeing is not necessarily the truth: Do institutional investors' corporate site visits reduce hosting firms' stock price crash risk?

This study examines the impact of institutional investors' corporate site visits (CSVs) on stock price crash risk. We find that the frequency of institutional investors' CSVs is positively associated with hosting firms' future stock price crash risk. This association is robust to an array of sensitivity checks, including alternative measures of interaction intensity, alternative samples, additional control variables, firm fixed effects model, two-stage instrumental approach, Heckman two-stage sample selection procedure and propensity score matching (PSM) procedure. Further analysis shows that the impact of institutional investors' CSVs on future crash risk is more pronounced when firm managers have higher bad-news hoarding incentives and less information disclosure monitoring, and when firms are plagued more by information asymmetry. Moreover, the economic mechanism analysis shows that the average cumulative abnormal return (CAR) around the announcement day of institutional investors' CSVs is significantly positive, that CSV5 have larger effect for firms with higher CARs and that firms visited more by institutional investors are more likely to make financial restatement in future. Overall, our findings are consistent with the notion that institutional investors' CSVs exacerbate managers' incentives to withhold bad news, which leads to bad news accumulation and future stock price crash risk.