Corporate relationship spending and stock price crash risk: Evidence from China's anti-corruption campaign

This study examines whether corporate relationship spending through business entertainment expenses (BEEs) affects future stock price crash risk. Stakeholder theory suggests that expenditure on relationship building with external stakeholders enhances trust, firm reputation, and transparency, potentially lowering future crash risk. However, agency theory suggests that excessive relationship spending is associated with greater information opacity and managerial opportunism, contributing to greater future crash risk. Our results are more aligned with the agency perspective, showing that BEEs relate positively to future crash risk. China's 2012 anti-corruption campaign significantly moderated the effect of BEEs on stock price crash risk, particularly for firms having weak political connections, weak information transparency, and weak external monitoring mechanisms. The positive BEE-crash relation persists after the anti-corruption campaign for high financial risk firms.