A New Determinant of Stock Price Crash Risk: Evidence from Corporate Cash Holding

This study explores the role of corporate cash holding and stock price crash risk. Grounded on agency philosophy, the firms holding a large portion of cash are more likely to be faced with agency problems and hence asymmetric information. Consequently, this study applies the level of corporate cash holding as a proxy for asymmetric information. Based on the U.S. sample between 1991 and 2019, the results demonstrate a positive association between the corporate cash holding and stock price crash risk. Therefore, the large cash firms with large cash holdings are more prone to stock price crash risk. To ensure our results are robust, two traditional stock price crash risk measures are applied while we further add one extra stock price crash risk to improve the test reliability. We further alleviate the endogeneity issue by performing 2SLS. We find the results remain unchanged.