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Climate policy uncertainty: A catalyst for stock price crash?
Hong Vo1, Anh Phan1, Quoc Dat Trinh1
1International University, Ho Chi Minh City, Viet Nam; Vietnam National University, Ho Chi Minh City, Viet Nam.
None:
This study investigates the impact of climate policy uncertainty (CPU) on stock price crash risk. Using a panel dataset of 94,573 U.S. firm-year observations from 1989 to 2024, and employing panel regression with industry fixed effects and firm-clustered standard errors, we find that elevated CPU significantly increases firms' susceptibility to stock price crashes. Our channel tests confirm that bad news hoarding and investor heterogeneity are key mechanisms through which CPU leads to price crashes. Specifically, CPU incentivizes management to adopt aggressive accounting practices and withhold adverse information for extended periods, while also exacerbating heterogeneities among investors, thereby making stocks more crash-prone. Further analyses reveal that these effects are more pronounced in firms with higher information asymmetry and, to some extent, weaker governance structures.
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