Limited partnership agreement structure and stock price crash risk

The ownership structure of listed companies affects the risk of stock price crash. Under the background of agency conflict and decentralised equity era of listed companies in China, how to effectively reduce the risk of stock price crash is an urgent problem to be solved. The limited partnership agreement structure has the advantages of risk isolation and equity incentive, therefore, in recent years, more and more enterprises in China's capital market have begun to incorporate the limited partnership agreement into the company's equity structure. Using a sample of companies listed on Shanghai and Shenzhen A-shares from 2014 to 2021, this study empirically examines how the limited partnership agreement structure (LP Structure) affects the stock price crash risk of listed companies. The results show that the limited partnership agreement structure can significantly reduce the risk of future stock price crash, and the research results are still robust after a series of robustness tests and control of endogenous problems. The mechanism test shows that the LP agreement structure can reduce the risk of stock price crash of listed companies by restraining the tunnelling behaviour of actual controllers, strengthening the supervision effect of minority shareholders, realising effective incentives for employees and improving the information transparency of listed companies. In addition, the heterogeneity analysis shows that the LP agreement structure has a more significant impact on the stock price plunge risk of listed companies under the conditions of dispersed ownership and good legal environment. The research in this study provides an incremental literature contribution to further understanding the economic consequences of LP agreement structure, and also provides empirical evidence for more listed companies to adopt LP agreement structure as a flexible architecture.