Impacts of environmental sustainable performance reporting on the stock price crash risk and stock liquidity: The mediating role of predictability and comparability

• Published date: 01 July 2023
• Author: Morteza Pahlavan,Ali Asghar Anvary Rostamy,Roya Darabi
• Date: 01 July 2023
• DOI: http://doi.org/10.1002/jcaf.22618

Received:  December Accepted:  January 

DOI: ./jcaf.

RESEARCH ARTICLE

Impacts of environmental sustainable performance

reporting on the stock price crash risk and stock liquidity:

The mediating role of predictability and comparability

Morteza Pahlavan1Ali Asghar Anvary Rostamy2Roya Darabi3

Department of Accounting, Islamic Azad

University, South TehranBranch, Tehran,

Iran

Professor of Finance, Tarbiat Modares

University, Tehran,Iran

Professor of Accounting, Islamic Azad

University, South TehranBranch, Tehran,

Iran

Correspondence

Ali Asghar Anvary Rostamy,Tehran, Jalal

Ale-Ahmad-Nasr,Tehran, Iran.

Email: anvary@modares.ac.ir

Abstract

Nowadays, sustainability performance reporting plays an important role in cor-

porates’ success. Since sustainability reporting improves the quality of disclosure

and financial transparency, it is expected to have positive effects on stock prices

and liquidity and reduce the crash and liquidity risk. This research investi-

gates the impacts of environmentally sustainable performance reporting on the

stock price crash and liquidity risks and the mediating role of earnings pre-

dictability and comparability using structural modeling equations. Using the

systematic elimination sampling method,  companies listed on the Tehran

Stock Exchange were selected. The studied period was from to  and PLS

software wasused for data analysis. The results show that environmental sustain-

ability performance reporting enhances earnings comparability and mitigates

the crash and liquidity risks. The findings also show that comparability has a

mediating impact on the relationship between environmentally sustainable per-

formance reporting with the crash and liquidity risk. Although the accuracy of

forecasted earnings significantly reduces the crash and liquidity risks, however,

we find no evidence for its mediating impact on the relationship between envi-

ronmentally sustainable performance reporting with crash and liquidity risks.

KEYWORDS

accuracy, comparability, crash risk, stock liquidity risk, sustainability reporting

1 INTRODUCTION

Lack of financial transparency and the increased stock

price crash risk that followed the global disaster and the

financial crisis in the United States () and the Iran

() gained critical concern. Kim et al. () defines

crash risk as an unfortunate event creates negative stock

return. According to Morck et al. (), liquidity affects

asset prices because investors prefer investing in high-

liquid assets. Investors expect to obtain higher returns for

more siky assets. However, the higher liquid stock has a

lower price change for a small portion of the transaction.

Some recent research considers other firm characteristics,

including corporate governance and agency costs, to affect

stock price crash and liquidity risks.

Lack of transparency in financial reporting increases the

information asymmetry between managers and beneficia-

ries and causes a delay in the release of bad news that is

not calculated in the stock prices, which leads to a future

stock price crash and liquidity risks. Hutton et al. ()

suggest that managers need some mechanisms to enhance

transparency and prevent the stock price crash and liquid-

ity risks. Since sustainable performance reporting (SPR)

is comprehensive and includes several dimensions of the

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