The relationship between cash flow uncertainty and extreme risk: International evidence

This study investigates the relationship between cash flow uncertainty and stock price crash risk. Using a large sample of firms from 22 countries, we find that a higher cash flow uncertainty leads to a higher crash risk for firms. The empirical results also indicate that cash flow uncertainty increases crash risk in most regions, industries, and other subsamples. Furthermore, this positive relationship between cash flow uncertainty and crash risk is more pronounced for firms in highly competitive industries, and those in countries with higher economic policy uncertainty. We use simultaneous equation and two-stage least squares regression methods to address endogenous concerns. Overall, our findings have useful policy implications for investors, firms, and regulators.