Subsidiary Cash Holdings and Stock Price Crash Risk —Evidence from Cash Distribution Within Business Groups

Where a business group keeps its liquidity—within operating subsidiaries or at the parent— shapes how quickly business units obtain funds and the risks investors face. Using consolidated and subsidiary-level disclosures for Chinese A-share firms from 2012 to 2022, this paper finds that the share of group cash retained by subsidiaries forecasts stock price crash risk one year ahead: firms whose subsidiaries control more group cash suffer significantly less severe crashes, a pattern that survives specification checks and matching-based corrections. Two channels underpin the result: subsidiary-level cash enhances financing capacity and resilience, and it restrains idle cash at the group level. The relation is stronger for recently listed and financially constrained firms.