Is corporate environmental investment a strategic risk management tool? Evidence from short selling threats

This study examines whether corporate environmental investment is employed as a strategic management tool in response to short-selling threats. Using a difference-in-differences approach, we find that corporate environmental investment increases in response to short-selling threats in threatened firms. The impact is more pronounced for firms with greater financial opacity and lower institutional ownership, which is consistent with the risk management hypothesis. Furthermore, we document that companies tend to increase their environmental disclosure in complement to the increase in environmental investment. We also find significant increases in environmental voluntary over regulatory investment after the firms have been added to the short-selling list. Additional analysis suggests that environmental investment reduces overinvestment and investment inefficiency, and it is negatively associated with stock price crash risk.