Unmasking the carbon conundrum: How emissions impact stock price crash risk

Abstract: This study examines the influence of carbon risk on stock price crash risk. Using a comprehensive dataset of 3,417 US companies from 2006 to 2021, we provide evidence that carbon risk is significantly linked to a higher crash risk for firms. Moreover, our findings suggest that this positive association is more pronounced during the Democratic presidency and to companies operating in carbon-intensive industries. The main results are consistent after conducting endogeneity and several robustness tests.