Trade policy uncertainty and stock price crash risk in China: The moderating role of marketization and digital transformation

Abstract

This paper investigates the link between trade policy uncertainty (TPU) and stock price crash risk in Chinese listed firms. Using a novel firm-level TPU index derived from annual reports between 2001 and 2023, we show that heightened TPU significantly elevates crash risk, robust across multiple specifications and measures. The effect is particularly pronounced in private firms, those with CEO duality, internationalized firms, and those audited by non-Big Four auditors. Mechanism tests reveal that TPU exacerbates crash risk through discretionary accruals, suppressed exports, investor sentiment distortions, analyst forecast bias, and information asymmetry. Importantly, market liberalization and digital transformation act as effective buffers. Our findings highlight TPU as a key determinant of firm-level fragility and extend the literature on uncertainty by uncovering the micro-level channels through which trade policy shocks destabilize capital markets, offering actionable insights for policymakers and investors.