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Environmental law enforcement as external monitoring: Evidence from the impact of an environmental inspection program on firm-level stock price crash risk

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  • Zhang, Xuehui
  • Tan, Jianhua
  • Chan, Kam C.

Abstract

Leveraging from the recent reform in the China’s new environmental inspector program (NEIP) as a natural experiment, we document that firms located in NEIP cities having lower future stock price crash risk than those located in non-NEIP cities. The findings are consistent with the notion that firms disclose more negative news when subject to enhanced environmental monitoring leading to a lower future stock price crash risk. Hence, environmental law enforcement has a deterrent effect on firms and making them more transparent. Overall, besides the impact on environment, environment law enforcement brings unintended positive effects on firm-level governance.

Suggested Citation

  • Zhang, Xuehui & Tan, Jianhua & Chan, Kam C., 2021. "Environmental law enforcement as external monitoring: Evidence from the impact of an environmental inspection program on firm-level stock price crash risk," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 21-31.
    • Handle: RePEc:eee:reveco:v:71:y:2021:i:c:p:21-31
    DOI: 10.1016/j.iref.2020.08.020
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    Cited by:

    1. Zhou, Hui & Nagayasu, Jun, 2023. "Is corporate environmental responsibility more valuable in the transitory period? The moderating effect of ownership type," Finance Research Letters, Elsevier, vol. 53(C).
    2. Tan, Jianhua & Chen, Tao & Zhang, Peng & Chan, Kam C., 2021. "Environmental rule enforcement and cash holdings: Evidence from a natural experiment," Economic Modelling, Elsevier, vol. 103(C).
    3. Fiordelisi, Franco & Ricci, Ornella & Santilli, Gianluca, 2023. "Environmental engagement and stock price crash risk: Evidence from the European banking industry," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Shu, Hao & Tan, Weiqiang & Wei, Ping, 2023. "Carbon policy risk and corporate capital structure decision," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Minghui Li & Chaohai Shen & Mengyao Wen, 2023. "The Effect of Firm-Specific Environmental Punishment on Stock Price Crash Risk: Evidence From China," SAGE Open, , vol. 13(4), pages 21582440231, October.
    6. Zhang, Xuehui & Tan, Jianhua & Chen, Yining & Chan, Kam C., 2021. "Does environmental law enforcement matter for financial reporting quality?," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).

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