The Impact of Cash Holding on Stock Price Crash Risk

Abstract

This paper develops a fixed-effect model to examine the effect of cash holding on stock price crash risk with data of Chinese listed firms from 2007 to 2018. The results indicate that corporate cash holding is positively related to stock price crash risk. Based on this consequence, it is proved that the positive relationship between operating cash flow and stock price crash risk is more pronounced. In addition, the nature of the state-owned property and "big four" auditors can strengthen the relationship of the cash holding and crash risk. This paper validates the negative effects of agency problems, confirming that the interest conflicts between stockholders and executives do increase the crash risk. It also provides a reference for investors to judge the investment risk of a firm. Moreover, it provides a new way for regulatory authorities to supervise the risk of enterprises and therefore maintain the stability of the market.