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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. Cai, Xiqian & Lu, Yi & Wu, Mingqin & Yu, Linhui, 2016. "Does environmental regulation drive away inbound foreign direct investment? Evidence from a quasi-natural experiment in China," Journal of Development Economics, Elsevier, vol. 123(C), pages 73-85.
    2. Li, Mingsheng & Liu, Desheng & Peng, Hongfeng & Zhang, Luxiu, 2020. "Does low synchronicity mean more or less informative prices? Evidence from an emerging market," Journal of Financial Stability, Elsevier, vol. 51(C).
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    4. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    5. 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).
    2. Zhang, Hua & Lai, Jie & Kang, Chenyi, 2024. "Green signalling under environmental pressure: Does local government environmental regulatory pressure promote corporate environmental information disclosure?," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 813-844.

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