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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.

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.

Suggested Citation

  • Wei, Zuobao & Xie, Feixue & Posthuma, Richard A., 2011. "Does it pay to pollute? Shareholder wealth consequences of corporate environmental lawsuits," International Review of Law and Economics, Elsevier, vol. 31(3), pages 212-218, September.
    • Handle: RePEc:eee:irlaec:v:31:y:2011:i:3:p:212-218
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    References listed on IDEAS

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    2. Flore, Christian & Kolaric, Sascha & Schiereck, Dirk, 2017. "Settlement agreement types of federal corporate prosecution in the U.S. and their impact on shareholder wealth," Journal of Business Research, Elsevier, vol. 76(C), pages 145-158.
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    4. Lin, Hsien-Ping & Walker, M. Mark & Wang, Yung-Jang, 2020. "Shareholder wealth effects of corporate fraud: Evidence from Taiwan’s securities investor and futures trader protection act," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 222-243.

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