Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing

Lirong Liu (), Mary Evans and Sarah Stafford ()
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Lirong Liu: Department of Economics and International Business, Sam Houston State University
Sarah Stafford: College of William and Mary

No 1206, Working Papers from Sam Houston State University, Department of Economics and International Business

Abstract: We explore how limits to our insight on the underlying decision-making structure of regulated entities may affect the conclusions we draw about the likely impacts of environmental policies, with a focus on environmental auditing. We examine the conditions under which a multi-facility firm chooses to adopt a standardized auditing. Our firm-level empirical analysis confirms that a uniform auditing outcome is less likely among firms (1) with a more heterogeneous portfolio of facilities, and (2) that are less likely to make decision errors. We examine the implications of adding controls for firm decision-making structure in a facility-level empirical analysis of auditing’s impact on compliance. Our results suggest that the estimated compliance impact of auditing varies depending on whether or not we include these controls.

Date: 2012-09
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Working Paper: Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing (2012)
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