Firm biodiversity risk and future stock price crash risk: Empirical evidence from China

Considering escalating global concern about biodiversity degradation, we evaluates how corporate exposure to biodiversity-related risks translates into subsequent extreme downside movements in stock prices, using a comprehensive sample of firms. Our empirical results indicate that Chinese A-share companies suffering from greater biodiversity risks become more prone to experiencing severe future price collapses, and this adverse association becomes markedly stronger following the Kunming Declaration and among sectors that are particularly sensitive to biodiversity-related shocks. Mechanism analyses further suggest that biodiversity risk feeds into crash-type downside risk mainly by deteriorating firm performance, exacerbating bad-news hoarding, and shaping investor behavior. Additional cross-sectional evidence reveals that this positive link is amplified for firms with poorer ESG performance, operating under stronger environmental regulations, located in regions with higher digital financial development, and facing heightened economic policy uncertainty. Additional analyses show that, after the Kunming Declaration, biodiversity risk triggers systemic risk by transmitting firm-level crash risks to the financial system. Overall, the findings deepen our understanding of the capital-market implications of firm-level biodiversity risk and contribute to the literature on the determinants of stock price crash risk.