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Economic policy uncertainty and stock price crash risk

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  • Xuejun Jin
  • Ziqing Chen
  • Xiaolan Yang

Abstract

This paper studies the impact of economic policy uncertainty on stock price crash risk using data from China. We develop a new index to measure Chinese economic policy uncertainty and find that economic policy uncertainty has a remarkable positive effect on stock price crash risk. However, the effect reverses later. The results also indicate that the positive effect of economic policy uncertainty on stock price crash risk is more prominent for state‐owned enterprises. Moreover, this effect is more prominent for firms with higher information asymmetry and firms with greater disagreement among investors, indicating that economic policy uncertainty affects crash risk through two mechanisms: managers’ concealment of bad news and investors’ heterogeneous beliefs.

Suggested Citation

  • Xuejun Jin & Ziqing Chen & Xiaolan Yang, 2019. "Economic policy uncertainty and stock price crash risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1291-1318, March.
    • Handle: RePEc:bla:acctfi:v:58:y:2019:i:5:p:1291-1318
    DOI: 10.1111/acfi.12455
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    References listed on IDEAS

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