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Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks

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  • Aymeric Bellon

Abstract

This paper shows that private equity (PE) ownership, in private-to-private buyouts, leads to a reduction in pollution when the target company faces high potential liabilities for polluting. Conversely, PE-backed firms increase pollution when environmental liability risks are low, as shown by a novel natural experiment that reduced these risks for projects located on federal land. Exploiting specific PE deals within the energy industry, I find that PE governance is the main driver of the results. The results suggest that increasing litigation and regulation-related risks can mitigate the potentially detrimental effects of PE ownership on stakeholders.

Suggested Citation

  • Aymeric Bellon, 2025. "Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks," The Review of Financial Studies, Society for Financial Studies, vol. 38(9), pages 2517-2556.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:9:p:2517-2556.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf035
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