Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks

Aymeric Bellon

The Review of Financial Studies, 2025, vol. 38, issue 9, 2517-2556

Abstract: This paper shows that private equity (PE) ownership, in private-to-private buyouts, leads to a reduction in pollution when the target company faces high potential liabilities for polluting. Conversely, PE-backed firms increase pollution when environmental liability risks are low, as shown by a novel natural experiment that reduced these risks for projects located on federal land. Exploiting specific PE deals within the energy industry, I find that PE governance is the main driver of the results. The results suggest that increasing litigation and regulation-related risks can mitigate the potentially detrimental effects of PE ownership on stakeholders.

Date: 2025
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