Environmental regulations, agency costs, and firm performance

Mufaddal Baxamusa and Abu Jalal

Research in International Business and Finance, 2024, vol. 70, issue PA

Abstract: We investigate whether environmental regulation reduce agency costs. We find that increases in environmental restrictions decrease liquidity and increase financial constraints. In addition, it increases the likelihood of the firms being acquired or delisted from the exchanges. Such adverse outcomes should lead the shareholders into taking actions that mitigate these risks. We notice that shareholders restructure the board of directors and incentivize CEOs with more stock ownership. These actions, in turn, reduce agency costs and lead to increases in future profitability for these firms.

Keywords: Pollution; Ozone; Porter Hypothesis; Cash; Governance; Profit; Agency (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 Q50 Q51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:70:y:2024:i:pa:s0275531924001004

DOI: 10.1016/j.ribaf.2024.102307

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