We examine how people's opinions about a company's performance in the environmental, social, and governance (ESG) aspects can affect the likelihood of its stock prices crashing. We find that negative public perception of a company's ESG performance (i.e., negative ESG news sentiment) increases the likelihood of stock price crashes. We further show that extensive media attention on a company's ESG performance increases the likelihood of stock price crashes and strengthens the negative relationship between ESG news sentiment and stock price crash risk. We demonstrate that negative ESG news sentiment and high media attention cause heightened stock liquidity and firm volatility, thereby elevating crash risk. The negative association between ESG news sentiment and stock price crash risk is less pronounced for firms with strong external monitoring and more pronounced for firms with highly opaque financial reporting. The positive association between high media attention and stock price crash risk is more pronounced for firms with highly opaque financial reporting. Our results remain robust across multiple endogeneity tests.
Keywords: ESG, News sentiment, Media attention, Stock price crash risk, Disclosure, Stock liquidity, Stock return volatility