Financial constraints and corporate environmental responsibility

Martin Götz

No 241, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: This paper analyzes the effect of financial constraints on firms' corporate social responsibility. Exploiting heterogeneity in firms' exposure to a monetary policy shock in the U.S., which reduced financial constraints for some firms, I find that firms increase their environmental responsibility. I use facility-level data to account for unobservable time-varying influences on pollution and find that toxic emissions decrease when parent companies are more exposed to the monetary policy shock. I further find that these facilities are also more likely to implement pollution abatement activities. Examining within-parent company heterogeneity I find that pollution abatement investments center on facilities at greater risk of facing additional costs due to environmental regulation. The findings are consistent with the idea that a reduction in financial constraints reduces pollution as it allows firms to implement pollution abatement measures.

Keywords: Corporate Social Responsibility; Emissions; Financial Constraints; Pollution; Bond Markets (search for similar items in EconPapers)
JEL-codes: E52 G32 Q52 Q53 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cfn, nep-env and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:241

DOI: 10.2139/ssrn.3230344

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