Document Type
Journal Article
Publication Title
International Review of Financial Analysis
Volume
93
Publisher
Elsevier
School
School of Business and Law
RAS ID
65598
Funders
2021 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Research Grant
Abstract
In this study, we conduct a textual analysis of the third-party disclosure of corporate sustainability news focused on the Standard and Poor's 500 firms in the United States market during the first and second quarter of 2020. We find a positive relationship between corporate sustainability news release and firm-specific stock price crash risk. This finding is surprising, but it indeed aligns with agency theory. It indicates that the coronavirus disease (COVID-19) pandemic exacerbated the tendency of managers under increasing financial pressure to use the sustainability information release as a mechanism to mask and withhold bad news for extended periods at the expense of shareholders. This tendency results in high stock price crash risk. Our results are robust to alternative empirical specifications, estimation methods, and tests for endogeneity. Moreover, additional evidence reveals that agency theory dominates legitimacy theory in explaining the effect of sustainability on this risk during the COVID-19 pandemic.
DOI
10.1016/j.irfa.2024.103167
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.
Comments
Zhang, J., Zheng, C., & Shan, Y. G. (2024). What accounts for the effect of sustainability engagement on stock price crash risk during the COVID-19 pandemic—agency theory or legitimacy theory?. International Review of Financial Analysis, 93, article 103167. https://doi.org/10.1016/j.irfa.2024.103167