Internal corporate governance and stock price crash risk: evidence from Vietnam

Abstract

This paper investigates the role of internal corporate governance and external audit in preventing future stock price crash risk. By using a sample of 655 non-financial listed firms in the Hanoi and Ho Chi Minh City stock exchange in Vietnam for the period 2010–2019, we find that internal corporate governance is significantly related to future stock price crash risk. Specifically, we find that strong boards are positively associated with the future stock price crash risk. However, the relationship between the effectiveness of audit committees and crash risk is negative. These results indicate that appropriate internal corporate governance can prevent stock price crash risk. In addition, this study provides evidence that an external audit quality enhances the audit committee’s effectiveness in preventing crash risk. The results provide some important implications for portfolio investment and risk management.