Government Environmental Attention and the Stock Price Crash Risk: From the Perspectives of External and Internal Governance

ABSTRACT Research Question/Issue Based on the section of the future work plan in the government work report, this study explores how government environmental attention influences the stock price crash risk and the role of internal and external corporate governance in this process. Research Findings/Insights This study takes the sample of heavily polluting industry firms listed on Chinese A‐shares from 2011 to 2020 and finds that government environmental attention can effectively reduce the stock price crash risk. The mechanism analysis suggests that government environmental attention mitigates crash risk by reducing information asymmetry. The improvement of internal and external corporate governance mechanisms can enhance the dampening effect of government environmental attention on the crash risk. Theoretical/Academic Implications First, our study offers a new perspective for exploring the determinants of crash risk and enriches the literature on the role of government environmental attention in financial markets. Second, we make a significant contribution to the literature on the attention‐based view. We not only enrich the application of the attention‐based view, but also provide new theoretical grounding for how government influences corporate behavior through soft constraints such as environmental attention. Third, our study advances the theoretical understanding of corporate governance by integrating the attention‐based view and the perspectives of internal and external governance. It emphasizes the “amplifier” role of internal and external governance mechanisms in transmitting governmental environmental attention. Practitioner/Policy Implications This study reflects the forward‐looking guidance role of government work reports from an empirical perspective, which has practical significance for the government to improve its environmental policies, for firms to optimize resource allocation and prevent the crash risk, and for the capital market to maintain stable operation. It also integrates the internal and external governance environment of firms, which helps optimize the corporate governance system, improve the corporate governance mechanism, and provide theoretical guidance for corporate management.