The role of financial constraints in firm investment under pollution abatement regulation

Tri Vi Dang, Youan Wang and Zigan Wang

Journal of Corporate Finance, 2022, vol. 76, issue C

Abstract: This paper empirically analyzes pollution abatement regulation within the context of the Clean Air Act's nonattainment status designation and shows that financial constraints are an important determinant of whether spending on mandatory pollution abatement crowds out or stimulates R&D investment and capital expenditure. We show that spending on mandatory pollution abatement and other investments are complements for financially unconstrained firms but substitutes for constrained firms. Financially unconstrained firms invest more and have lower current profits but higher future profits; financially constrained firms invest less and have stable current profits but lower long-term profits. (JEL: G32, G38, Q58).

Keywords: Mandatory pollution abatement; Financial constraints; R&D; Capital expenditure (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922000955

DOI: 10.1016/j.jcorpfin.2022.102252

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