“The moderating role of legal enforcement in ESG's impact on corporate crash risk: Evidence from Asian stock market”

Abstract

Environment, Social, and Governance (ESG) scores serve as an index that indicates the extent to which listed companies operate an eco-friendly and cleaner production process, are responsible to society, and are transparent and accountable with their shareholders and investors. This study investigates the impact of Environmental, Social, and Governance (ESG) practices on stock price crash risk, with a particular focus on the influence of law enforcement. Using a comprehensive dataset from major Asian markets, spanning 2011 to 2022, we assess how ESG practices influence financial stability. Our findings reveal that higher ESG scores significantly reduce stock price crash risk, highlighting the importance of sustainability in corporate strategies. Moreover, the study explores the interaction between ESG practices and the legal environment, highlighting the critical role of robust legal frameworks in enhancing ESG practices' effectiveness.