Financial Constraints and Corporate Environmental Policies

Qiping Xu and Taehyun Kim

The Review of Financial Studies, 2022, vol. 35, issue 2, 576-635

Abstract: This paper documents evidence that financial constraints increase firms’ toxic emissions given that firms actively trade off abatement costs against potential legal liabilities. Exploring three quasi-natural experiments in which firms’ financial resources are likely exogenously affected, we find that relaxing financial constraints reduces U.S. public firms’ toxic releases. The effects of financial constraints on toxic releases are amplified when regulatory enforcement and external monitoring weaken. Overall, our evidence highlights the real effects of financial constraints in the form of environmental pollution, which is a costly negative externality imposed on society and public health.

JEL-codes: G32 G38 K32 Q50 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (71)

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