How ESG Disclosure Affects the Stock Price Crash Risk

Abstract

This study delves into the relationship between ESG (environmental, social, and governance) factors and the possibility of a stock market collapse. While ESG factors have become a pivotal consideration in assessing a company's sustainable and ethical business practices, the dynamics between ESG scores and the stock market collapse risk remain underexplored. Drawing upon a comprehensive dataset from 2009-2020, our research offers an enriched understanding of these factors' interplay. Initial findings suggest a correlation between higher ESG scores and reduced stock price collapse risk. The paper contributes to the broader discourse in three keyways. Firstly, it expands the understanding of ESG's economic consequences, emphasizing its potential protective role against significant stock price downturns. Secondly, by incorporating the perspective of sustainable business practices, the research contributes to the existing literature on the factors that determine of stock price collapse risk. Finally, it underscores the practical implications of promoting ESG in mitigating financial risks, informing both corporate strategies and regulatory frameworks.