Could the NTB-LTB Merger Reform Decrease Stock Price Crash Risk

Taking the merger of National Tax Bureaus (NTB)-Local Tax Bureaus (LTB) in 2018 as a quasi-natural experiment, this paper estimates the impact of reform of tax collection and administration system on the financial market stabilization from the perspective of stock price crash risk. Our difference-in-difference estimation shows that after the NTB-LTB merger reform, firms’ stock price crash risk significantly decreases, and this effect is more pronounced in firms with worse internal governance, lower external supervision and worse reginal legal environment. Further, the mechanism test shows that the NTB-LTB merger reform improves corporate information transparency and promotes firms to confirm and disclose the negative news timelier, and the stock price ultimately is not vulnerable to the negative shock that caused by the centralized release of bad news, which effectively lowers firms’ stock price crash risk. Our findings provide micro-firm level evidence for exploring the impact of tax collection and management on the financial market stabilization, which is of great significance to the current reform of tax collection and management system.