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The Reputational Penalties for Environmental Violations: Empirical Evidence

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  • Karpoff, Jonathan M
  • Lott, John R, Jr
  • Wehrly, Eric W

Abstract

This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. Firms that violate environmental laws suffer statistically significant losses in the market value of firm equity. The losses, however, are of similar magnitudes to the legal penalties imposed, and in the cross section, the market value loss is related to the size of the legal penalty. Thus, environmental violations are disciplined largely through legal and regulatory penalties, not through reputational penalties.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jlawec:y:2005:v:48:i:2:p:653-75
    DOI: 10.1086/430806
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