Green finance reform and stock price crash risk: Evidence from Chinese heavily polluting companies

In 2017, China established green finance reform (GFR) pilot areas to promote green finance. Using Chinese listed heavily polluting companies for the period 2007–2020, this paper finds that the GFR reduces the stock price crash risk based on difference-in-differences (DID) methods. This study proposes two potential mechanisms: easing financial constraints and curbing management's tendency to hoard bad news. Furthermore, the reduction effect is more significant for firms with high environmental expenditure, non-state-owned firms, large firms, and firms with high media attention. These results provide evidence for the positive consequences of the green finance reform on the stock market.