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The Effect of Clean Water Regulation on Profitability: Testing the Porter Hypothesis

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  • Dylan G. Rassier
  • Dietrich Earnhart
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    Abstract

    Previous theoretical research provides opposing arguments regarding the effect of environmental regulation on profitability. This study provides empirical evidence on this debated effect by testing the "strong" version of the Porter hypothesis. We employ panel data analysis to examine the effect of water regulation, as measured by permitted wastewater discharge limits, on the profitability of publicly held firms operating within the chemical manufacturing industries. We find that tighter water regulation meaningfully lowers profitability. By reinterpreting profitability in terms of sales and costs, the results demonstrate that tighter water regulation increases costs conditioned on a given level of sales.

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    File URL: http://le.uwpress.org/cgi/reprint/86/2/329
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    Bibliographic Info

    Article provided by University of Wisconsin Press in its journal Land Economics.

    Volume (Year): 86 (2010)
    Issue (Month): 2 ()
    Pages: 329-344

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    Handle: RePEc:uwp:landec:v:86:y:2010:i:2:p:329-344

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    Web page: http://le.uwpress.org/

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    Cited by:
    1. Ambec, Stefan & Cohen, Mark A. & Elgie, Stewart & Lanoie, Paul, 2011. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," Discussion Papers dp-11-01, Resources For the Future.
    2. Doran, Justin & Ryan, Geraldine, 2012. "Regulation and Firm Perception, Eco-Innovation and Firm Performance," MPRA Paper 44578, University Library of Munich, Germany.

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