Environmental Regulation and Financial Stability: How Corporate Communication Mitigates Stock Price Crash Risk Under China’s New Environmental Protection Law

This study examines how stringent environmental regulation affects the financial stability of heavily polluting firms by assessing the impact of China’s new Environmental Protection Law (NEPL) on stock price crash risk. Using a Difference-in-Differences approach with A-share listed companies from 2006 to 2024, the results show that the NEPL significantly increases the crash risk of heavily polluting firms. Further analysis reveals that information interaction between companies and investors, which covers proactiveness, efficiency, richness, and effectiveness, plays an crucial role in mitigating crash risk by enhancing transparency and investor confidence. Notably, only the proactiveness and efficiency dimensions exhibit significant moderating effects in weakening the NEPL’s adverse impact, whereas richness and effectiveness show no comparable influence. These findings provide new insights into how corporate communication under environmental regulation shapes market stability and underscore the importance of timely and responsive investor engagement for firms facing regulatory shocks.