The relationship between green activity and stock price crash risk in European listed firms

This paper examines whether the relationship between green activity and stock price crash risk found for US firms in previous studies persists when using a sample of firms incorporated in Europe in the period 2002-2022. Green activity is captured by using six ESG-dummies that represent firms’ environmental sustainability focused activities. In addition to the baseline results, this paper introduces variable Non-Polluting Sectors that captures whether a firm is in a non-polluting sector or not, and conditional thereon extends its results. The paper finds mixed results on the relationship between specific green activities and stock price crash risk. The results found in the baseline results do not persist for the robustness check with an alternative proxy for crash risk. The paper makes suggestions for further research on this relationship based on the findings in this paper.