Abstract
AbstractWe examine the relationship between economic policy uncertainty (EPU) and stock price crash risk via the corporate investment in Chinese listed firms. Results show that higher EPU is associated with lower crash risk. Firms increase financial asset holdings and reduce overinvestment when EPU rises, leading to lower future crash risk. State‐owned enterprises (SOEs) and firms with lower management incentives tend to reduce overinvestment, whereas non‐SOEs tend to increase financial asset holdings. Thus, firms tend to be cautious in their investments when EPU is high, which reduces crash risk. Our study provides new insights into the validity of the Lucas critique in China.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
