Environmental inefficiency and bond credit rating
Kailing Deng and
Journal of Economics and Business, 2019, vol. 101, issue C, 17-37
This study examines the impact of a firm’s polluting activities (measured as environmental inefficiency) on the firm’s bond credit rating. We posit that firms with excessive polluting activities (i.e., a high level of environmental inefficiency) receive low bond ratings because prior research links pollution reduction to better firm performance and outcomes. Using a 29-year panel sample with 4969 firm-year observations (representing 310 unique firms) from 1987 to 2015, we find a significant negative relation between environmental inefficiency and bond ratings. Our results still hold after a battery of robustness checks. In addition, we find that our results are largely driven by firms that are not near a broad bond rating change (i.e., firms without a plus or minus specification in their bond ratings).
Keywords: Environmental inefficiency; Environmental activities; Bond credit ratings (search for similar items in EconPapers)
JEL-codes: G24 M49 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:101:y:2019:i:c:p:17-37
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