IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v81y2025ics1544612325007196.html

Corporate excess cash, economic policy uncertainty and stock price crash risk

Author

Listed:
  • Zhang, WenXue
  • Tian, Yuhao
  • Zhu, Zeyu

Abstract

Based on data from non-financial listed companies in the Shanghai and Shenzhen A-share markets from 2010 to 2023, this paper systematically explores the impact of corporate excess cash holdings on stock price crash risk and its underlying mechanisms. The study finds a significant positive correlation between corporate excess cash and stock price crash risk, suggesting that excess cash may increase stock price volatility by exacerbating agency problems. Further analysis reveals that economic policy uncertainty plays a moderating role in this process: when uncertainty rises, it suppresses the aggravating effect of excess cash on stock price crash risk, highlighting the partial offsetting effect of precautionary demand on agency problems. Heterogeneity analysis shows that CEO duality significantly weakens the positive relationship between excess cash and stock price crash risk, indicating that improvements in internal governance structures can mitigate agency conflicts.

Suggested Citation

  • Zhang, WenXue & Tian, Yuhao & Zhu, Zeyu, 2025. "Corporate excess cash, economic policy uncertainty and stock price crash risk," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007196
    DOI: 10.1016/j.frl.2025.107460
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325007196
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.107460?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Minghui Yang & Yan Wang & Lu Bai & Petra Maresova, 2023. "Corporate social responsibility, family involvement, and stock price crash risk," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(3), pages 1204-1225, May.
    2. Ma, Liangbo, 2023. "Corporate social responsibility reporting in family firms: Evidence from China," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    3. Zhou, Fangzhao & Zhu, Jichen & Qi, Yawei & Yang, Jun & An, Yunbi, 2021. "Multi-dimensional corporate social responsibilities and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    4. Hail Jung & Sanghak Choi & Junyoup Lee & Sanggeum Woo, 2022. "Corporate pledgeable asset ownership and stock price crash risk," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-28, December.
    5. Zhang, Li & Liu, Chengyi & Zhang, Jinjin & Ke, Jinjun & Yuan, Jiayue, 2023. "Party leadership, corporate governance and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    6. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    7. Benkraiem, Ramzi & Gaaya, Safa & Lakhal, Faten & Lakhal, Nadia, 2023. "Economic policy uncertainty, investor protection, and the value of excess cash: A cross-country comparison," Finance Research Letters, Elsevier, vol. 52(C).
    8. Jeong-Bon Kim & Yi Si & Chongwu Xia & Lei Zhang, 2022. "Corporate Derivatives Usage, Information Environment, and Stock Price Crash Risk," European Accounting Review, Taylor & Francis Journals, vol. 31(5), pages 1263-1297, October.
    9. Benkraiem, Ramzi & Gaaya, Safa & Lakhal, Faten, 2022. "Corporate tax avoidance, economic policy uncertainty, and the value of excess cash: International evidence," Economic Modelling, Elsevier, vol. 108(C).
    10. Ramzi Benkraiem & Safa Gaaya & Faten Lakhal, 2022. "Corporate tax avoidance, economic policy uncertainty, and the value of excess cash: International evidence," Post-Print hal-03562552, HAL.
    11. Wu, Keping & Fu, Yumei & Kong, Dongmin, 2022. "Does the digital transformation of enterprises affect stock price crash risk?," Finance Research Letters, Elsevier, vol. 48(C).
    12. Kong, Gaowen & Huang, Jiating & Kong, Dongmin & Zhu, Ling, 2023. "Female executives, industrial robots, and stock price crash risk," Finance Research Letters, Elsevier, vol. 57(C).
    13. Xiaojia Zheng & Xuebin Zhang & Ge Yang & Liqing Wang, 2024. "Product market competition, corporate governance and stock price crash risk: Evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 31(12), pages 1150-1158, July.
    14. Ramzi Benkraiem & Safa Gaaya & Faten Lakhal & Nadia Lakhal, 2023. "Economic policy uncertainty, investor protection, and the value of excess cash: A cross-country comparison," Post-Print hal-03981906, HAL.
    15. Wang, Liang & Wang, Qikai & Jiang, Fan, 2023. "Booster or stabilizer? Economic policy uncertainty: New firm-specific measurement and impacts on stock price crash risk," Finance Research Letters, Elsevier, vol. 51(C).
    16. Han, Xun & Hsu, Sara & Li, Jianjun & An, Ran, 2023. "Economic policy uncertainty, non-financial enterprises' shadow banking activities and stock price crash risk," Emerging Markets Review, Elsevier, vol. 54(C).
    17. Ramzi Benkraiem & Safa Gaaya & Faten Lakhal, 2022. "Corporate tax avoidance, economic policy uncertainty, and the value of excess cash: International evidence," Post-Print hal-03509359, HAL.
    18. Yuan, Mengyi & Zhang, Lin & Lian, Yonghui, 2022. "Economic policy uncertainty and stock price crash risk of commercial banks: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 587-605.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Qiang & Lou, Mingyu, 2025. "Executive team faultlines, business diversification, and corporate substantive innovation," International Review of Economics & Finance, Elsevier, vol. 103(C).
    2. Zhou, Jingyi & Xie, Mengyuan, 2025. "Chain leader policy and corporate green innovation—Perspectives of financing constraints and risk-taking," International Review of Financial Analysis, Elsevier, vol. 106(C).
    3. Zhu, Chenyu & Liu, Liwen & Zhou, Shoujie & Han, Lifeng, 2025. "Executive misconduct and corporate operational risk," Finance Research Letters, Elsevier, vol. 84(C).
    4. Xu, Wenjie & Xie, Wenqiang, 2025. "Supply chain finance and tourism enterprise resilience in the context of economic policy uncertainty," Finance Research Letters, Elsevier, vol. 86(PA).
    5. Sun, Wenjie & Mei, Jianhua & Chen, Kecun & Li, Zhaoqi, 2025. "Biodiversity risk and value creation in emerging markets," Finance Research Letters, Elsevier, vol. 85(PC).
    6. Tingqian Pu, 2025. "Exploring the impact of digital technology adoption on cash holdings: financing constraints as a moderator," Future Business Journal, Springer, vol. 11(1), pages 1-13, December.
    7. Li, Yi & Liu, Tong & Wang, Zhaohua, 2025. "Do ESG-conscious fund managers drive green innovation? An LLM-based textual analysis of fund manager narratives," Research in International Business and Finance, Elsevier, vol. 77(PB).
    8. Bao, Xiaohua & Gao, Deting & Wei, Yaning & Wu, Wentao & Zhang, Jie, 2025. "Connect to certainty: Domestic trade network and trade policy uncertainty," Finance Research Letters, Elsevier, vol. 82(C).
    9. Zhou, Jingyi & Xie, Mengyuan, 2025. "Supply chain risk perception and corporate green innovation bubbles," Finance Research Letters, Elsevier, vol. 85(PC).
    10. Xie, Xiaoyu & Guo, Kaige & Han, Zhongya, 2025. "Digital technology application and green technological innovation under economic policy uncertainty: Empirical evidence from China's manufacturing industry," International Review of Financial Analysis, Elsevier, vol. 108(PA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhu, Bo & Wang, Yiwei, 2024. "Green governance and stock price crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    2. Pan, Xiaozhen & Aimaiti, Sabahati, 2025. "Actual controllers with foreign residency rights and corporate tax avoidance: Evidence from private listed companies in China," Emerging Markets Review, Elsevier, vol. 69(C).
    3. Benkraiem, Ramzi & Gaaya, Safa & Lakhal, Faten & Kilic, Merve, 2025. "Access to finance and corporate tax avoidance: International evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 58(C).
    4. Kangqi Jiang & Xiaofeng Chen & Jiayun Li & Mengling Zhou, 2025. "Technology adoption and extreme stock risk: Evidence from digital tax reform in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-20, December.
    5. Deng, Lixing & Lai, Shaojie & Liu, Shiang & Pu, Xiaoling, 2022. "Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China," Economic Modelling, Elsevier, vol. 114(C).
    6. Liu, Pengfei & Liu, Yan, 2025. "Tax uncertainty, cash holdings and corporate investment," Finance Research Letters, Elsevier, vol. 85(PE).
    7. Vasanthan Subramaniam & Mosharrof Hosen, 2023. "Corporate diversification and debt financing: Do family shareholders protect their control rights?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1305-1317, March.
    8. Nie, Zhiping & Li, Kexin & Zheng, Qingyu, 2025. "Corporate tax avoidance, financing constraints, and pollution emissions: A moral consistency theory perspective," Finance Research Letters, Elsevier, vol. 86(PG).
    9. Negkakis, Christos I. & Negkakis, Ioannis C. & Pavlou, Christos & Persakis, Antonios, 2025. "Tax avoidance and evasion under economic political uncertainty: The moderating roles of tax morale and religiosity," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 59(C).
    10. Bai, Yunxia & Liu, Xiaohan & Alam, Fahad, 2025. "Corporate tax avoidance and stock returns: Unveiling the moderating mechanism of tax plans," International Review of Financial Analysis, Elsevier, vol. 106(C).
    11. Benkraiem, Ramzi & Gaaya, Safa & Lakhal, Faten & Lakhal, Nadia, 2023. "Economic policy uncertainty, investor protection, and the value of excess cash: A cross-country comparison," Finance Research Letters, Elsevier, vol. 52(C).
    12. Li, Xing & Shen, Guangjun, 2023. "Do tax incentives decelerate corporate financialization? Evidence from the VAT reform in China," Economic Modelling, Elsevier, vol. 125(C).
    13. R. Benkraiem & F. Lakhal & A. Slama, 2024. "How does the heterogeneity of institutional investors influence corporate tax avoidance? The moderating role of family ownership," Post-Print hal-04925276, HAL.
    14. Yao, Meijie & Chen, Wei, 2025. "Government subsidies, economic policy uncertainty and corporate financialization," International Review of Financial Analysis, Elsevier, vol. 104(PB).
    15. Richardson, Grant & Obaydin, Ivan & Liu, Chelsea, 2022. "The effect of accounting fraud on future stock price crash risk," Economic Modelling, Elsevier, vol. 117(C).
    16. Wei, Lang & Zhang, Yiling, 2023. "Nonfinancial indicators in identifying stock price crash risk," Finance Research Letters, Elsevier, vol. 52(C).
    17. Chuanlu Ge & Yuhan Bi & Jia Xu, 2024. "Local donation culture and corporate tax avoidance: Evidence from China," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 734-763, July.
    18. Cheng, Xuemei & Zheng, Yinglong & Tu, Yongqian, 2025. "Research on the dynamic interaction effects of litigation events, financing constraints, and the risk of corporate stock price crashes," International Review of Economics & Finance, Elsevier, vol. 99(C).
    19. Niu, Yuhao & Wang, Sai & Wen, Wen & Li, Sifei, 2023. "Does digital transformation speed up dynamic capital structure adjustment? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    20. Zuo, Jingjing & Qiu, Baoyin & Zhu, Guoyiming & Lei, Guangyong, 2023. "Local speculative culture and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 64(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007196. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.