The Role of Market Forces in EPA Enforcement Activity

S G Badrinath and Paul J Bolster

Journal of Regulatory Economics, 1996, vol. 10, issue 2, 165-81

Abstract: 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

Date: 1996
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