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Air quality and stock price crash risk: From the perspective of audit quality

Author

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  • Xu, Jia
  • Liu, Weiqi
  • Wu, Hanzhang

Abstract

This paper investigates the impact of air quality (AQI) on the stock price crash risk of A-share listed companies in China from 2014 to 2022. The results reveal that the air quality of the location of the listed company's headquarters determines the risk of stock price crashes. That is, worse air quality leads to a higher crash risk. Furthermore, worsening air quality reduces audit quality and increases agency costs, both further exacerbating the risk of stock price crashes. The mediating effect of audit quality and agency costs, rooted in information asymmetry, underlies this relationship, and further analysis shows that this effect is more obvious for companies with low corporate information transparency, those that are state-owned enterprises, and those located in non-eastern regions of China. An interaction between a company's digital transformation and air quality is also revealed, emphasizing the need to adapt to external environmental challenges. These findings have significant theoretical and practical implications for corporate governance, policymaking, and environmental protection.

Suggested Citation

  • Xu, Jia & Liu, Weiqi & Wu, Hanzhang, 2025. "Air quality and stock price crash risk: From the perspective of audit quality," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612325000388
    DOI: 10.1016/j.frl.2025.106773
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