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Financial Constraints and Corporate Environmental Policies

Author

Listed:
  • Qiping Xu
  • Taehyun Kim

Abstract

This paper documents evidence that financial constraints increase firms’ toxic emissions given that firms actively trade off abatement costs against potential legal liabilities. Exploring three quasi-natural experiments in which firms’ financial resources are likely exogenously affected, we find that relaxing financial constraints reduces U.S. public firms’ toxic releases. The effects of financial constraints on toxic releases are amplified when regulatory enforcement and external monitoring weaken. Overall, our evidence highlights the real effects of financial constraints in the form of environmental pollution, which is a costly negative externality imposed on society and public health.

Suggested Citation

  • Qiping Xu & Taehyun Kim, 2022. "Financial Constraints and Corporate Environmental Policies," The Review of Financial Studies, Society for Financial Studies, vol. 35(2), pages 576-635.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:2:p:576-635.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab056
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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