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Does it pay to pollute? Shareholder wealth consequences of corporate environmental lawsuits

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  • Wei, Zuobao
  • Xie, Feixue
  • Posthuma, Richard A.
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    Abstract

    In this paper, we employ the event study methodology to examine shareholder wealth consequences of corporate environmental lawsuits filed in the US Circuit Courts from 1980 to 2001. We find that stocks of defendant firms experience significant negative abnormal returns around the lawsuit filing dates. When the plaintiffs are government entities, the abnormal returns of the defendant stocks are significantly negative. On the other hand, when the plaintiffs are individuals or nonpublic business entities, the abnormal returns are statistically insignificant. When lawsuits are filed under EPA's superfund statute, defendant firms experience significant loss in equity value. For shareholders of the average firm in our sample, the empirical evidence suggests that it does not pay to pollute if the firm is sued.

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    File URL: http://www.sciencedirect.com/science/article/pii/S014481881100041X
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 31 (2011)
    Issue (Month): 3 (September)
    Pages: 212-218

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    Handle: RePEc:eee:irlaec:v:31:y:2011:i:3:p:212-218

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    Web page: http://www.elsevier.com/locate/irle

    Related research

    Keywords: Shareholder wealth Corporate litigation Environmental lawsuits;

    References

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    1. Sanjai Bhagat & John Bizjak & Jeffrey L. Coles, 1998. "The Shareholder Wealth Implications of Corporate Lawsuits," Financial Management, Financial Management Association, vol. 27(4), Winter.
    2. Ambec, S. & Lanoie, P., 2007. "When and why does it pay to be green ?," Working Papers 200704, Grenoble Applied Economics Laboratory (GAEL).
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
    4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    5. Bruce Haslem, 2005. "Managerial Opportunism during Corporate Litigation," Journal of Finance, American Finance Association, vol. 60(4), pages 2013-2041, 08.
    6. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    7. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
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