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The Role of Market Forces in EPA Enforcement Activity


  • Badrinath, S G
  • Bolster, Paul J


As corporate concern regarding environmental issues grows, recent studies have debated the stock market's role as an enforcer of environmental regulation. We examine stock market reactions to EPA judicial actions on a sample of publicly traded firms from 1972-91. Specifically, we find that (a) there is a significant decline of 0.43% in violator firm value during the week of settlement; (b) the market penalty is unrelated to fine size, (c) more pronounced for citations under the Clean Air Act, (d) for repeat violators, and (e) for more recent EPA actions. These stock market reactions appear to reinforce the intent of EPA enforcement efforts. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Badrinath, S G & Bolster, Paul J, 1996. "The Role of Market Forces in EPA Enforcement Activity," Journal of Regulatory Economics, Springer, vol. 10(2), pages 165-181, September.
  • Handle: RePEc:kap:regeco:v:10:y:1996:i:2:p:165-81

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    References listed on IDEAS

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    Cited by:

    1. André, Francisco J. & Sokri, Abderrahmane & Zaccour, Georges, 2011. "Public Disclosure Programs vs. traditional approaches for environmental regulation: Green goodwill and the policies of the firm," European Journal of Operational Research, Elsevier, vol. 212(1), pages 199-212, July.
    2. Sarah L. Stafford, 2005. "Can Consumers Enforce Environmental Regulations? The Role of the Market in Hazardous Waste Compliance," Working Papers 19, Department of Economics, College of William and Mary.
    3. Blackman, Allen & Afsah, Shakeb & Ratunanda, Damayanti, 2000. "How Do Public Disclosure Pollution Control Programs Work? Evidence from Indonesia," Discussion Papers dp-00-44, Resources For the Future.
    4. Bernard Sinclair-Desgagné, 2000. "Environmental Risk Management and the Business Firm," CIRANO Working Papers 2000s-23, CIRANO.
    5. Heyes, Anthony, 2002. "A Theory of Filtered Enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 34-46, January.
    6. Brooks, Richard R W, 2002. "Liability and Organizational Choice," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 91-125, April.
    7. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 192-205, March.
    8. Siegel, Jordan, 2005. "Can foreign firms bond themselves effectively by renting U.S. securities laws?," Journal of Financial Economics, Elsevier, vol. 75(2), pages 319-359, February.
    9. Caplan, Arthur J., 2003. "Reputation and the control of pollution," Ecological Economics, Elsevier, vol. 47(2-3), pages 197-212, December.
    10. J.J. Graafland & H. Smid, 2004. "Reputation, Corporate Social Responsibility and Market Regulation," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature, vol. 0(2), pages 271-308.
    11. Cole, Matthew A. & Elliott, Robert J.R. & Okubo, Toshihiro & Zhou, Ying, 2013. "The carbon dioxide emissions of firms: A spatial analysis," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 290-309.
    12. Mehar, Ayub, 2008. "National trade associations, economic development and globalization," MPRA Paper 18590, University Library of Munich, Germany, revised 17 Sep 2008.
    13. Heyes, Anthony & Kapur, Sandeep, 2012. "Community pressure for green behavior," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 427-441.
    14. Karpoff, Jonathan M & Lott, John R, Jr & Wehrly, Eric W, 2005. "The Reputational Penalties for Environmental Violations: Empirical Evidence," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 653-675, October.
    15. Anthony Heyes & Marcel Oestreich, 2017. "The Optimal NGO Chief: Strategic Delegation in Social Advocacy," Working Papers 1701, Brock University, Department of Economics.
    16. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April.
    17. Foulon, Jerome & Lanoie, Paul & Laplante, Benoit, 2002. "Incentives for Pollution Control: Regulation or Information?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 169-187, July.
    18. Sarah Stafford, 2007. "Can consumers enforce environmental regulations? The role of the market in hazardous waste compliance," Journal of Regulatory Economics, Springer, vol. 31(1), pages 83-107, February.
    19. Foulon, Jerome & Lanoie, Paul & Laplante, Benoit, 2000. "Incentives for pollution control - regulation and public disclosure," Policy Research Working Paper Series 2291, The World Bank.
    20. Heyes, Anthony & Doucet, Joseph, 1997. "2-Stage Enforcement and Regulatory Polarisation: a Simple Model with Application to the USEPA," Cahiers de recherche 9717, Université Laval - Département d'économique.

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