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Environmental risk and stock price crash risk: Evidence from energy substitution policy adoption

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  • Li, Sen
  • Zhang, Yi

Abstract

Exploring the staggered adoption of energy substitution policy, we investigate the relationship between reduced environmental risk and stock price crash risk. The result shows that stock price crash risk decreases following the policy's passage. Moreover, firms disclose more environmental information (specifically, hard information) following the policy and the policy's effect on crash risk is stronger for firms with higher information asymmetry. These findings are consistent with signaling theory, i.e., reduced environmental risk increases environmental information disclosure, leading to a lower stock price crash risk. Overall, this paper suggests that reduced environmental risk plays a crucial role in decreasing crash risk, providing empirical support for adopting clean energy.

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  • Li, Sen & Zhang, Yi, 2025. "Environmental risk and stock price crash risk: Evidence from energy substitution policy adoption," International Review of Economics & Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001406
    DOI: 10.1016/j.iref.2025.103977
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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