EPA enforcement, firm response strategies, and stockholder wealth: an empirical examination

J.C. Bosch, Edwin Eckard and Insup Lee
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J.C. Bosch: University of Colorado at Denver, USA, Postal: University of Colorado at Denver, USA
Insup Lee: Seoul Investment Trust Management Co., Korea, Postal: Seoul Investment Trust Management Co., Korea

Managerial and Decision Economics, 1998, vol. 19, issue 3, 167-177

Abstract: We investigate the effect of EPA pollution control enforcement activities and firm response strategies on stockholders' wealth. We find that the market reacts negatively upon learning that the firm has been targeted, and that losing a contest with the EPA is very costly to stockholders. Apparently firms are not expected to recover a significant part of pollution control costs from their customers. Somewhat surprisingly, losses are only weakly related to the presence of (unregulated) foreign competition, suggesting that untargeted domestic competitors may restrain cost recovery. Our analysis also indicates that firms may benefit by cooperating with the EPA; i.e., compliant strategies reduce (but don't avoid) wealth losses. The losses of firms that settle are about 40% less than those of firms that fight and lose, and we find no evidence of value gains for firms that fight and win. © 1998 John Wiley & Sons, Ltd.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:19:y:1998:i:3:p:167-177

DOI: 10.1002/(SICI)1099-1468(199805)19:3<167::AID-MDE882>3.0.CO;2-7

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