Climate risk disclosure and stock price crash risk: The case of China

Climate change is a major and complex challenge currently facing the global economy, and significantly impacting the valuation of global financial assets and the financial system's stability. When the stock prices of large-scale listed companies fall sharply in a short time, we consider that a stock price crash. This paper constructs a novel measure of climate risk disclosure at the firm level by adopting a textual analysis method. We study whether climate risk exposure in listed company announcements can effectively reduce stock price crash risk. Studies have shown that, the more companies are concerned and disclose climate risk more positively, the lower the risk of stock price crash they face in the future. In addition, compared to alleviating the information asymmetry between internal managers and external investors, enhancing information disclosure to mitigate the risk of a stock price crash in the future is mainly achieved through the channel of raising the public's awareness of climate risk. Moreover, the mitigation effect of information disclosure related to climate risk on future stock price crash risk is more evident in manufacturing, mining, energy, agriculture, forestry, animal husbandry, and fishery directly threatened by climate change. In general, we encourage corporates to disclose the potential risks of climate change in the announcement of quarterly and annual reports in a standardized format.