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Do Environmental Audits Improve Long-term Compliance? Evidence from Manufacturing Facilities in Michigan

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Author Info

  • Mary F. Evans

    ()
    (The Robert Day School of Economics and Finance, Claremont McKenna College)

  • Lirong Liu

    ()
    (Department of Economics and International Business, Sam Houston State University)

  • Sarah L. Stafford

    ()
    (Department of Economics, College of William and Mary)

Abstract

Using a unique facility-level dataset from Michigan, we examine the effect of environmental auditing on manufacturing facilities’ long-term compliance with U.S. hazardous waste regulations. We also investigate the factors that affect facilities’ decisions to conduct environmental audits and whether auditing in turn affects the probability of regulatory inspections. We account for the potential endogeneity of our audit measure and the censoring of our compliance measure using a censored trivariate probit, which we estimate using simulated maximum likelihood. We find that larger facilities and those subject to more stringent regulations are more likely to audit; facilities with poor compliance records are less likely to audit. However, we find no significant long-run impact of auditing on the probability of a regulatory inspection or compliance among these Michigan manufacturing facilities.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 78.

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Length: 38 pages
Date of creation: 25 Sep 2008
Date of revision: 25 Sep 2011
Handle: RePEc:cwm:wpaper:78

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Keywords: environmental auditing; hazardous waste; compliance; enforcement;

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References

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  1. Sarah L. Stafford, 2008. "Self-Policing in a Targeted Enforcement Regime," Southern Economic Journal, Southern Economic Association, vol. 74(4), pages 934-951, April.
  2. Anton, Wilma Rose Q. & Deltas, George & Khanna, Madhu, 2002. "Incentives for Environmental Self-Regulation and Implications for Environmental Performance," Working Papers 02-0120, University of Illinois at Urbana-Champaign, College of Business.
  3. Mishra, Birendra K. & Paul Newman, D. & Stinson, Christopher H., 1997. "Environmental regulations and incentives for compliance audits," Journal of Accounting and Public Policy, Elsevier, vol. 16(2), pages 187-214.
  4. Laplante, Benoit & Rilstone, Paul, 1996. "Environmental Inspections and Emissions of the Pulp and Paper Industry in Quebec," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 19-36, July.
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  6. Shogren, Jason F. & Shin, S. Y. & Hayes, Dermot J. & Kliebenstein, James, 2003. "Experimental in Environmental Economics," Staff General Research Papers 11934, Iowa State University, Department of Economics.
  7. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of Multivariate Normal Probabilities by Simulation, with Applications to Maximum Simulated Likelihood Estimation," Discussion Papers of DIW Berlin 584, DIW Berlin, German Institute for Economic Research.
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Citations

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Cited by:
  1. Lirong Liu & Mary F. Evans & Sarah Stafford, 2012. "Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing," Working Papers 1206, Sam Houston State University, Department of Economics and International Business.
  2. Dietrich Earnhart, 2013. "Effect of Systems to Manage Environmental Aspects on Environmental Performance," Sustainability, MDPI, Open Access Journal, vol. 5(6), pages 2557-2588, June.

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