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Green Commitment and Stock Prick Crash Risk

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  • Liu, Prof Haiyue
  • Wang, Yile
  • Xue, Dr Rui
  • Linnenluecke, Prof Martina
  • Cai, Dr Cynthia Weiyi

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.

Suggested Citation

  • Liu, Prof Haiyue & Wang, Yile & Xue, Dr Rui & Linnenluecke, Prof Martina & Cai, Dr Cynthia Weiyi, 2022. "Green Commitment and Stock Prick Crash Risk," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005791
    DOI: 10.1016/j.frl.2021.102646
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