Do firms with excessive cash holdings exhibit higher stock price crash risk? Evidence from Korea

Abstract

Purpose – In this study, we examine whether firms holding excessive cash reserves exhibit different stock price crash risk, using the Korean sample from 2004 to 2023. We find a significantly positive association between corporate excessive cash holdings and stock price crash risk. This result is salient for firms with low majority ownership, those affiliated with the chaebol groups, and when external monitoring by institutional or foreign investors is weak. Thus, corporate excessive cash appears to be related to managers’ bad news hoarding, as it worsens agency problems and leads to a higher crash risk. Consistently, firms that likely have weak precautionary motives for holding excessive cash, such as those paying no cash dividends, having poor investment opportunities, reporting net loss, or spending zero on R&D, exhibit a stronger positive relationship between their excess cash and crash risk. © 2025 Jeonghu Pak, Seongjae Mun and Hyeong Joon Kim