Environmental Engagement and Stock Price Crash Risk: Evidence From the European Banking Industry

This paper investigates the impact of banks’ environmental engagement on their future stock price crash risk. Given the strong commitment of European institutions towards a low carbon economy, we focus on European banks, who are expected to be crucial actors in driving this challenge. Using a sample of 447 bank-year observations across 22 European countries from 2015 to 2021, we find a negative relationship between banks’ environmental engagement and future stock price crash risk, by the signalling theory, suggesting that a high level of environmental engagement corresponds to high ethical standards of bank managers and high levels of financial transparency. ESG, Environmental, Crash risk, Europe, Financial Institutions.