Redeploying dirty assets: The impact of environmental

Jason Chen

Journal of Financial Economics, 2025, vol. 170, issue C

Abstract: This paper investigates how firms’ pollution incentives are influenced by their ability to divest polluted assets. My empirical setting is a major reform that exempts purchasers from liability for past contamination. Using a difference-in-differences framework, I find that the reform reduces toxic emissions, lowers bankruptcy risk, and increases firm value. Cross-sectional tests show that the decline in emissions is driven by firms with weaker financial health and fewer assets. These findings highlight a novel net worth channel: by limiting ex-post liability, the reform enhances landowners’ net worth ex-ante, reducing their incentives to engage in risky behavior, such as excessive emissions.

Keywords: The market for corporate assets; Financial distress; Industrial pollution; Environmental economics (search for similar items in EconPapers)
JEL-codes: G21 G34 M14 Q50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:170:y:2025:i:c:s0304405x25000789

DOI: 10.1016/j.jfineco.2025.104070

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