This study aims to examine the impact of environmental regulation on stock price crash risk and the underlying mechanisms driving this effect.
Using a mediating effect model with a firm-level sample of Chinese A-share listed companies from 2010 to 2021, to the best of the authors’ knowledge, this research first investigates the direct impact of environmental regulation on stock price crash risk and then further explores their relationship through heterogeneity tests.
Environmental regulation increased the risk of stock price crashes, with environmental information disclosure quality and agency costs partially mediating this relationship. Further analysis revealed that the positive effect of environmental regulation on stock price crash risk was pronounced only among firms with weaker innovation capabilities and lower equity incentive intensity, state-owned enterprises and firms in heavily polluting industries.
This study contributes to the literature on the economic consequences of environmental regulation and determinants of stock price crash risk, offering important theoretical insights and empirical evidence for reconciling environmental governance with capital market stability in the sustainable development context.
