This paper selects the sample data of equity exercise of Shanghai and Shenzhen A share listed companies by Investment Service Center from 2010 to 2020, and investigates the supervision and governance effect of regulatory minority shareholders from the perspective of small investor protection. This research empirically tests the influence mechanism of investment service center's shareholding exercise on the stock price crash risk of listed companies. The results show that the risk of stock price crash is significantly reduced when the listed companies are held by the investment service center, and the effect is more significant in non-state-owned enterprises. Mechanism test found that shareholding exercise can reduce the risk of stock price crash by enhancing accounting conservatism and improving the quality of information disclosure; Heterogeneity analysis examines the governance effect of shareholding exercise under the difference of internal and external supervision and governance levels. When internal governance efficiency is low and external supervision is insufficient, the impact of shareholding exercise is more significant, which plays the governance substitution effect to a certain extent. The extended analysis examines the incremental effect of multiple exercise and the regulatory spillover effect of equity exercise in the industry. The research provides theoretical support for the implementation of the concept of “innovating supervision methods and preventing major risks” in securities regulation, and is of great significance for improving the quality of listed companies and improving investor protection.