This paper investigates the relationship between ultimate ownership and crash risk before and after the split-share structure reform in China, during which the previously non-tradable shares become freely tradable. We find that government-controlled firms, especially the local governmentcontrolled ones, have significantly higher crash risks than privately controlled firms. After the reform, the crash risks of all firms have been reduced significantly, with privately controlled firms experiencing a larger reduction than the government-controlled firms. Further evidence demonstrates that government-controlled firms with stronger political incentives tend to have higher crash risks, and this positive association is more pronounced in local government-controlled firms. Various robustness and endogeneity tests confirm our main conclusions.

Keywords: Crash Risk, Government Control, Split-Share Structure Reform, Political Connections

JEL Classification Number: F23, F30, G15, G32, O32