Can Capital Markets Create Incentives for Pollution Control?
AbstractIt has been observed that upon trading-off the costs and benefits of pollution control, profit-maximizing firms may choose not to invest their resources in pollution abatement since the expected penalty imposed by regulators falls considerably short of the investment costs. Regulators have recently embarked on a deliberate strategy to release information to markets (investors and consumers) regarding firms' environmental performance in order to enhance incentives for pollution control. In this paper, we analyze the role that capital markets may play to create such incentives. Evidence drawn from American and Canadian studies indicates that capital markets react to the release of information, and that large polluters are affected more significantly from such releases than smaller polluters. This result appears to be a function of the regulator's willingness to undertake strong enforcement actions as well as the possiblity for capital markets to rank and compare firms with respect to their environmental performance. Il a été observé que, par rapport au compromis entre les coûts et les bénéfices du contrôle de la pollution, les entreprises maximisant leurs profits peuvent choisir de ne pas investir leurs ressources dans la réduction de la pollution puisque la pénalité imposée par le législateur est considérablement plus faible que les coûts de l'investissement nécessaire. Récemment, les législateurs se sont engagés dans une stratégie délibérée qui a pour objet de rendre disponibles, aux agents économiques (investisseurs et consommateurs), des informations portant sur la performance environnementale des entreprises. Dans cet article, nous analysons le rôle que le marché des capitaux joue dans la création de tels incitatifs. Les résultats obtenus d'études américaines et canadiennes indiquent que le marché des capitaux réagit à la publication d'information, et que les grands pollueurs sont plus affectés que les petits. Ces résultats semblent être fonction de la capacité pour le marché des capitaux de classer et de comparer les entreprises selon leur performance environnementale et de la crédibilité du législateur quant aux actions coercitives qu'il peut entreprendre.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRANO in its series CIRANO Working Papers with number 97s-05.
Date of creation: 01 Feb 1997
Date of revision:
Contact details of provider:
Postal: 2020 rue University, 25e étage, Montréal, Quéc, H3A 2A5
Phone: (514) 985-4000
Fax: (514) 985-4039
Web page: http://www.cirano.qc.ca/
More information through EDIRC
Environment; Financial Markets; Regulation; Environnement; marchés financiers; réglementation;
Find related papers by JEL classification:
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Magat, Wesley A & Viscusi, W Kip, 1990. "Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 331-60, October.
- Deily, Mary E. & Gray, Wayne B., 1991.
"Enforcement of pollution regulations in a declining industry,"
Journal of Environmental Economics and Management,
Elsevier, vol. 21(3), pages 260-274, November.
- Mary E. Deily & Wayne B. Gray, 1989. "Enforcement of pollution regulations in a declining industry," Working Paper 8912, Federal Reserve Bank of Cleveland.
- Borenstein, Severin & Zimmerman, Martin B, 1988. "Market Incentives for Safe Commercial Airline Operation," American Economic Review, American Economic Association, vol. 78(5), pages 913-35, December.
- Viscusi, W Kip & Hersch, Joni, 1990. "The Market Response to Product Safety Litigation," Journal of Regulatory Economics, Springer, vol. 2(3), pages 215-30, September.
- Cormier, Denis & Magnan, Michel & Morard, Bernard, 1993. "The impact of corporate pollution on market valuation: some empirical evidence," Ecological Economics, Elsevier, vol. 8(2), pages 135-155, October.
- Jarrell, Gregg & Peltzman, Sam, 1985.
"The Impact of Product Recalls on the Wealth of Sellers,"
Journal of Political Economy,
University of Chicago Press, vol. 93(3), pages 512-36, June.
- Gregg A. Jarrell & Sam Peltzman, 1984. "The Impact of Product Recalls on the Wealth of Sellers," University of Chicago - George G. Stigler Center for Study of Economy and State 33, Chicago - Center for Study of Economy and State.
- William F. Sinclair, 1991. "Controlling Effluent Discharges from Canadian Pulp and Paper Manufacturers," Canadian Public Policy, University of Toronto Press, vol. 17(1), pages 86-105, March.
- Afsah, Shakeb & Laplante, Benoit & Wheeler, David, 1996. "Controlling industrial pollution : a new paradigm," Policy Research Working Paper Series 1672, The World Bank.
- Fry, Clifford L & Lee, Insup, 1989. "OSHA Sanctions and the Value of the Firm," The Financial Review, Eastern Finance Association, vol. 24(4), pages 599-610, November.
- Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
- Dasgupta, Susmita, 1999. "Opportunities for improving environmental compliance in Mexico," Policy Research Working Paper Series 2245, The World Bank.
- Arthur Caplan, 2002.
"Reputation and the Control of Pollution,"
2002-24, Utah State University, Department of Economics.
- Khanna, Madhu, 2001. " Non-mandatory Approaches to Environmental Protection," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 291-324, July.
- Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu, 1998. "Capital markets responses to environmental performance in developing countries," Policy Research Working Paper Series 1909, The World Bank.
- Wheeler, David, 2001. "Racing to the bottom : foreign investment and air pollution in developing countries," Policy Research Working Paper Series 2524, The World Bank.
- Iulie Aslaksen & Terje Synnestvedt, 2003. "Corporate environmental protection under uncertainty," Discussion Papers 355, Research Department of Statistics Norway.
- Amarnath Ananthanarayanan, 1998. "Is There A Green Link A Panel Data Value Event Study Of The Relationship Between Capital Markets And Toxic Releases," Departmental Working Papers 199818, Rutgers University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.