The Effect of Economic Policy Uncertainty on the Risk of Stock Price Crashes with Emphasis on the Inefficiency of Investment in Human Resources

Economic policy uncertainty (EPU) has emerged as a critical macroeconomic factor influencing corporate decision-making and capital market stability. In recent years, growing fluctuations in fiscal, monetary, and regulatory policies have intensified uncertainty in financial markets, increasing firms’ exposure to extreme downside risk. Among the most severe manifestations of such risk is stock price crash risk, defined as the likelihood of sudden and extreme negative firm-specific returns resulting from the accumulation and abrupt release of bad news. This study aims to provide a comprehensive review of the effect of economic policy uncertainty on stock price crash risk, with particular emphasis on the mediating role of inefficiency in human resource investment. Methodologically, the study adopts a systematic review approach, synthesizing theoretical frameworks and empirical evidence from prior research in accounting and finance literature. It integrates insights from agency theory, information asymmetry theory, behavioral finance, and real options theory to construct a conceptual explanation of how macro-level policy uncertainty translates into firm-level crash risk. The review evaluates empirical findings across developed and emerging markets, focusing on measurement approaches for EPU, crash risk proxies, and investment inefficiency indicators. The findings consistently indicate that higher levels of economic policy uncertainty significantly increase stock price crash risk. This effect operates both directly—through intensified information asymmetry and managerial bad news hoarding—and indirectly, by distorting corporate investment decisions. In particular, inefficiency in human resource investment emerges as a critical but underexplored transmission channel. Under uncertain policy environments, managers may engage in overinvestment or underinvestment in workforce development, generating latent operational weaknesses that accumulate as hidden adverse information. When such information is eventually disclosed, stock prices may adjust sharply downward. In conclusion, economic policy uncertainty not only heightens overall market volatility but also amplifies firm-specific crash risk, especially when internal investment inefficiencies exist. Strengthening governance, transparency, and strategic human capital management can mitigate these adverse effects and enhance corporate resilience in uncertain policy environments.

کلیدواژه ها:

Economic policy uncertainty ، Stock price crash risk ، Human resource investment ، Investment inefficiency ، Information asymmetry