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

摘要

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.