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

WenXue Zhang, Yuhao Tian and Zeyu Zhu

Finance Research Letters, 2025, vol. 81, issue C

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.

Keywords: Corporate excess cash; Stock price crash risk; Economic policy uncertainty; CEO duality (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007196

DOI: 10.1016/j.frl.2025.107460

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