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Economic policy uncertainty and stock price crash risk
Author(s) -
Jin Xuejun,
Chen Ziqing,
Yang Xiaolan
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12455
Subject(s) - crash , stock price , stock (firearms) , economics , china , financial economics , monetary economics , econometrics , business , actuarial science , mechanical engineering , paleontology , series (stratigraphy) , computer science , law , political science , engineering , biology , programming language
This paper studies the impact of economic policy uncertainty on stock price crash risk using data from China. We develop a new index to measure Chinese economic policy uncertainty and find that economic policy uncertainty has a remarkable positive effect on stock price crash risk. However, the effect reverses later. The results also indicate that the positive effect of economic policy uncertainty on stock price crash risk is more prominent for state‐owned enterprises. Moreover, this effect is more prominent for firms with higher information asymmetry and firms with greater disagreement among investors, indicating that economic policy uncertainty affects crash risk through two mechanisms: managers’ concealment of bad news and investors’ heterogeneous beliefs.