The Pitfall of Selective Environmental Information Disclosure on Stock Price Crash Risk: Evidence From Polluting Listed Companies in China

Abstract

Due to incomplete legal regulation, enterprises have the motive of selective environmental information disclosure (EID), and such selective disclosure strategy may result in stock price crash risk. In this study, the EID scores of China’s 1,010 polluting listed companies between 2007 and 2017 are first measured by employing the text analysis approach. Subsequently, we empirically examine the impacts of corporate’s selective EID on the stock price crash risk. The results indicate that EID of China’s polluting listed companies has significantly increased their stock price crash risk, rather than reducing it. Specifically, the EID of polluting companies with lower information efficiency, higher inefficient investment, higher degree of government control, and location in lower marketization areas is more likely to increase their stock price crash risk. Additional analyses reveal that the EID of polluting listed companies in China cannot reduce their stock price synchronization, which means that the selective disclosure of environmental information of China’s polluting listed companies is useless, and thus cannot reduce the risk of stock price crash.

The Impact of ESG Rating on Stock Price Synchronization of Listed Companies: Evidence from China

“…Non-financial information disclosure of listed companies was once regarded as a mechanism to improve the information efficiency of the capital market. A number of researchers have confirmed the significant association between the disclosure of information related to environmental [4][5][6][7], CSR [8][9][10][11] and corporate governance [12][13][14]issues of listed companies and the synchronization or crash risk of stock price. Meanwhile, the degree of influence of E, S and G factors on stock price synchronization varies across contexts [15], while in China, the ESG rating has been shown to be negatively related to the crash risk of stock price [16] and investors have paid more attention to environmental factors in recent years [17].…”

Detection of Corporate Environmental Information Disclosure Falsification Based on Support Vector Machine

“…However, EID also has costs [ 5 ], because the environmental information disclosed by companies will be subject to strict review by regulators, which will bring them pressure to solve environmental problems [ 6 ]. In addition, EID may become the basis for enterprise environmental risk assessment, and investors prefer companies with good environmental performance.…”

How does environmental leadership cause adoption of environmental policy?

“…To gain a greater competitive advantage against other enterprises, contemporary enterprises must not only adopt the environmental policy but also require employees to demonstrate pro-environmental behaviors, which are important sources of sustainable competitive advantage (Wu et al, 2021;Xu et al, 2021;Zhou et al, 2021). Proenvironmental behavior refers to the extent to which individuals engage in environmental protection-related behaviors to improve environmental sustainability (Jia et al, 2021;Li et al, 2020;Zhu et al, 2021).…”

“…Meaning management theory states that leaders will engage with meaning management theory to shape followers' behaviors to meet organizational expectations. Many businesses have indeed adopted pro-environmental behaviors and environmental policy to achieve sustainable performance (Robertson and Barling, 2015;Xu et al, 2021), but few studies have explored which organizational management mechanisms can enhance the pro-environmental behaviors and environmental policy. Furthermore, this paper takes social pressure as the boundary condition between the pro-environmental behaviors of the TMT and the adoption of environmental policy, because the TMT faces higher social pressure and should show more intention to adopt environmental policy caused by pro-environmental behaviors based on institutional theory.…”