Skin in the Game or Playing with Fire: Fund Insider Ownership and Firm-Level Stock Price Crash Risk

Skin in the Game or Playing with Fire: Fund Insider Ownership and Firm-Level Stock Price Crash Risk | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Skin in the Game or Playing with Fire: Fund Insider Ownership and Firm-Level Stock Price Crash Risk Wenwu Cai, Zhuang Zhuang, Cheng Xiang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6628954/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Using a dataset of Chinese mutual funds and public firms from 2009 to 2023, we provide robust empirical evidence that firms with higher fund insider ownership—shares held by fund insiders through their managed funds—exhibit greater future stock price crash risk. Channel tests reveal that individual investors and fund peers interpret fund insider ownership as a positive signal of firms' future stock market performance, fueling heightened optimism and herding behavior toward firms with high fund insider ownership. Moreover, such firms experience more site visits from mutual funds, intensifying their pressure to suppress negative news to bolster short-term stock prices. Cross-sectional analysis reveals that this effect is more pronounced in firms with weaker stock market performance, higher analyst coverage, or less information disclosure. Our study suggests that fund insider ownership, designed to mitigate agency conflicts between fund investors and insiders, may inadvertently destabilize the stock market. JEL classification : G12; G14; G23 Fund Insider Ownership Stock Price Crash Risk Agency Conflicts Mutual Funds Herding Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6628954","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":485629606,"identity":"8de0d78e-7935-4fab-bc87-8d0e276e28cf","order_by":0,"name":"Wenwu Cai","email":"","orcid":"","institution":"Nanjing University of Aeronautics and Astronautics","correspondingAuthor":false,"prefix":"","firstName":"Wenwu","middleName":"","lastName":"Cai","suffix":""},{"id":485629607,"identity":"24c8dfed-9e67-4ba2-a49c-997226dbf527","order_by":1,"name":"Zhuang Zhuang","email":"data:image/png;base64,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","orcid":"","institution":"Zhejiang Gongshang University","correspondingAuthor":true,"prefix":"","firstName":"Zhuang","middleName":"","lastName":"Zhuang","suffix":""},{"id":485629608,"identity":"cfaf4e5e-c307-4be2-ba6b-34f1a46d37fb","order_by":2,"name":"Cheng Xiang","email":"","orcid":"","institution":"Chongqing University","correspondingAuthor":false,"prefix":"","firstName":"Cheng","middleName":"","lastName":"Xiang","suffix":""}],"badges":[],"createdAt":"2025-05-09 13:08:31","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6628954/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6628954/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":86915045,"identity":"c0543e0c-c36c-4f4b-9cfa-f48d701b7c4e","added_by":"auto","created_at":"2025-07-17 06:11:47","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":535283,"visible":true,"origin":"","legend":"","description":"","filename":"FundinsiderManuscriptanonymised.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6628954/v1_covered_e8e9440a-3ac2-4fc7-a7ee-dc102cef9c5a.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Skin in the Game or Playing with Fire: Fund Insider Ownership and Firm-Level Stock Price Crash Risk","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Fund Insider Ownership, Stock Price Crash Risk, Agency Conflicts, Mutual Funds, Herding","lastPublishedDoi":"10.21203/rs.3.rs-6628954/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6628954/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eUsing a dataset of Chinese mutual funds and public firms from 2009 to 2023, we provide robust empirical evidence that firms with higher fund insider ownership—shares held by fund insiders through their managed funds—exhibit greater future stock price crash risk. Channel tests reveal that individual investors and fund peers interpret fund insider ownership as a positive signal of firms' future stock market performance, fueling heightened optimism and herding behavior toward firms with high fund insider ownership. Moreover, such firms experience more site visits from mutual funds, intensifying their pressure to suppress negative news to bolster short-term stock prices. Cross-sectional analysis reveals that this effect is more pronounced in firms with weaker stock market performance, higher analyst coverage, or less information disclosure. 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