With the issue of a series of environmental laws and regulations such as the new Environmental Protection Law, the supervision and punishment against enterprises in violation of environmental information disclosure are unprecedented, reflecting the characteristics of “regulation” by the government. In the context of these policy changes, it is still unknown whether the environmental information disclosed by enterprises can be understood by investors. From the perspective of stock price crash risk, this paper uses the DID model to empirically test the market effect of environmental information regulation (EIR).

The study finds that the effect of EIR has significantly increased the level of stock price crash risk. It is mainly reflected in the current period of policy implementation, especially in enterprises with poor transparency and those with few shares held by institutional investors. The irrational investor sentiment caused by target lock-in and sensitive information lock-in is the main reason why EIR intensifies the stock price crash risk. However, this does not mean that there is no information effect of EIR, but is covered by the effect of irrational investor sentiment in the short run. Therefore, the regulatory authorities should seriously consider the background of China’s capital market, and take actions to strengthen investor education and public opinion guidance, so as to effectively alleviate and eliminate irrational investor sentiment and avoid investor anxiety due to EIR. Meanwhile, for fully exerting the information effect of EIR, the regulatory authorities also need to constantly improve the rules and guidelines of environmental information disclosure, enhance the implementation, and promote enterprises to effectively improve the transparency and information content of environmental information.

This paper may contribute to the following aspects: Firstly, it identifies the market effect of EIR from the perspective of stock price crash risk, and further analyzes the internal influence mechanism from the aspects of both irrational investor sentiment effect and information effect, which provides new empirical evidence for a more comprehensive and in-depth understanding of the economic consequences of EIR, as well as expands the research related to the use of environmental regulation tools. Secondly, it takes the quasi-natural experiment of EIR to deal with the possible endogenous problems, and thereby more accurately identifies the market effect of EIR. Thirdly, as one of the earliest domestic literature in this field, it provides new theoretical explanations and empirical evidence for the economic consequences of environmental information disclosure, and also has certain guiding significance on how to prevent the stock price crash risk.