The Environmental, Social, Governance (ESG) Rating, and Stock Price Crash Risk: The Moderating Effect of Financial Constraints

Stock price crash risk is one of the main concerns of investors since it cannot be mitigated through portfolio diversification. The purpose of this research was to investigate the effect of (ESG) rating on stock price crash risk. A sample of 129 companies listed on the Tehran Stock Exchange was selected and tested for the period 2014 to 2020. The results of multiple regression analysis showed that ESG rating is negatively associated with stock price crash risk. The one-year lag ESG rating had no significant effect on the negative coefficient of skewness, but was negatively associated with down-to-up volatility. In addition, the two-year lag of ESG rating had no significant effect on stock price crash risk. The results also showed that financial constraints have a significant effect on the relationship between ESG rating and negative coefficient of skewness. However, it did not affect the relationship between ESG rating and down-to-up volatility.