ESG and Stock Price Crash Risk: Role of Financial Constraints*

Abstract This paper investigates whether corporate performance measured from three aspects—environmental, social responsibility and governance (“ESG”)—are associated with stock price crash risk, and also examines how the relation between ESG ratings and stock price crash risk is affected by the degree of financial constraint. Our empirical results show that ESG ratings reduce the stock price crash risk, and this relation is significantly alleviated for financially constrained firms. The results imply that greater financial constraint suppresses the positive role of corporate social responsibility in mitigating the risk of a stock price crash.