Does it pay to pollute? Shareholder wealth consequences of corporate environmental lawsuits

Zuobao Wei, Feixue Xie and Richard A. Posthuma

International Review of Law and Economics, 2011, vol. 31, issue 3, 212-218

Abstract: In this paper, we employ the event study methodology to examine shareholder wealth consequences of corporate environmental lawsuits filed in the US Circuit Courts from 1980 to 2001. We find that stocks of defendant firms experience significant negative abnormal returns around the lawsuit filing dates. When the plaintiffs are government entities, the abnormal returns of the defendant stocks are significantly negative. On the other hand, when the plaintiffs are individuals or nonpublic business entities, the abnormal returns are statistically insignificant. When lawsuits are filed under EPA's superfund statute, defendant firms experience significant loss in equity value. For shareholders of the average firm in our sample, the empirical evidence suggests that it does not pay to pollute if the firm is sued.

Keywords: Shareholder; wealth; Corporate; litigation; Environmental; lawsuits (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:31:y:2011:i:3:p:212-218

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