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Environmental regulation and stock price synchronicity: Evidence from a quasi-natural experiment in China

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  • Chen, Jing
  • Liu, Xinghe

Abstract

Prior literature under-theorizes the effect of environmental regulation on firms' stock market outcomes. Our study addresses this gap by investigating the impact of environmental regulation on stock price synchronicity using the promulgation of China's new Environmental Protection Law (EPL) as a quasi-natural experimental setting. Integrating the institution- and resource-based views, our findings show that the new EPL has significantly mitigated high-polluting firms' stock price synchronicity, with this effect being more pronounced for financially constrained firms and less significant for politically connected ones. Our findings also confirm that enhanced environmental and accounting information disclosure serve as underlying mechanisms of the focal relationship. Our study contributes to a finer-grained understanding of the consequences of environmental regulation and presents a more complete account of the determinants of stock price synchronicity.

Suggested Citation

  • Chen, Jing & Liu, Xinghe, 2023. "Environmental regulation and stock price synchronicity: Evidence from a quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1513-1528.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1513-1528
    DOI: 10.1016/j.iref.2023.07.089
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