Green Commitment and Stock Prick Crash Risk

Haiyue Liu, Yile Wang*, Rui Xue, Martina Linnenluecke, Cynthia Weiyi Cai

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The information obfuscation hypothesis states that managers use corporate green practices intentionally to obfuscate or disguise negative information and environmental misbehaviour to extract rents for personal career concerns. In contrast, signalling theory suggests that green-oriented firms deliver a positive signal to the market, favouring “green” investors. Such pro-environmental signals ultimately translate into enhanced financial performance and reduced risk of a price crash. Using Chinese listed firms as the research setting, we further investigate the relationship between corporate green commitment and stock price crash risk. The results show that solid green commitment significantly reduces stock price crash risk. The effect is more pronounced in non-state-owned firms and when the stock market is in a downturn. We also find mediating effects of external governance by institutional investors and media that transmit the impact of green commitment onto price crash risk. Our findings have important implications for corporate resilience against unexpected crises.
Original languageEnglish
Article number102646
JournalFinance Research Letters
Early online date23 Dec 2021
DOIs
Publication statusE-pub ahead of print - 23 Dec 2021

Keywords

  • Governance
  • Green commitment
  • Media coverage
  • Risk mitigation
  • Stock price crash risk

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