Spillover of stock price crash risk: Do environmental, social and governance (ESG) matter?

This study measures the static and dynamic crash risk connections across ESG networks from 2015 to 2020, using the generalized vector autoregressive framework. In particular, it highlights the mixed results of the crash risk connections across ESG three pillars and the different spillover performance when firms with different ownership structures and qualification of margin-trading and short-selling. Our results reveal that stocks with higher ESG ratings display more negative net spillover effects, which is consistent with the ideas that stock groups with good ESG performance experience lower crash risk, and thus transmitting smaller crash risk to other ESG levels. Among the three ESG pillars, good social performance (S) significantly lowers the total crash risk connections. In contrast, firms with well environment performance (E) do not transmit lower crash risk. Moreover, SOEs and firms with qualification of margin-trading and short-selling have lower total crash risk connections among ESG ratings. Using propensity score matching to match companies with high ESG and low ESG quarterly, we find the results are still robust. When dividing the sample according to the outbreak of COVID-19, we find the crash risk connections across ESG networks are stronger during crisis. •We examine the crash risk connections across ESG networks in the context of China.•The static and time-varying results show that crash risk spreads from low ESG rating to high ESG rating.•For the environmental pillar, the crash risk spillover presents opposite result.•The total crash risk connections are smaller for SOEs.•The crash risk spillovers increase during crisis.