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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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    References listed on IDEAS

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    1. Juhyun Jung & Kathleen Herbohn & Peter Clarkson, 2018. "Carbon Risk, Carbon Risk Awareness and the Cost of Debt Financing," Journal of Business Ethics, Springer, vol. 150(4), pages 1151-1171, July.
    2. Zhihua Cheng & Feng Wang & Christine Keung & Yongxiu Bai, 2017. "Will Corporate Political Connection Influence the Environmental Information Disclosure Level? Based on the Panel Data of A-Shares from Listed Companies in Shanghai Stock Market," Journal of Business Ethics, Springer, vol. 143(1), pages 209-221, June.
    3. Nguyen, Nhut H. & Truong, Cameron, 2013. "The information content of stock markets around the world: A cultural explanation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 1-29.
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    Cited by:

    1. Ruan, Lei & Li, Jianing & Huang, Siqi, 2024. "News or noise? ESG disclosure and stock price synchronicity," International Review of Financial Analysis, Elsevier, vol. 95(PB).

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