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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

Xuehui Zhang, Jianhua Tan and Kam C. Chan

International Review of Economics & Finance, 2021, vol. 71, issue C, 21-31

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.

Keywords: Environmental law enforcement; External monitoring; Crash risk (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2020.08.020

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