JEL Classification: G14; G18; Q53; Q58
Keywords: environmental regulation, pollution, firm value, event study
학회소식
[2022년 5차 CAFM2022]Environmental regulation, pollution, and shareholder wealth
작성자 : 관리자
조회수 : 369
게시일 :
2022-12-20
This paper examines how stock markets react to changes in environmental regulation and firm pollution. Our empirical setting exploits county-level ozone nonattainment designations induced by discrete policy changes in air quality standards as part of the Clean Air Act. Nonattainment designations impose strict environmental regulations on polluting firms and thus serve as an exogenous source of variation in local regulatory stringency. On the extensive margin of pollution, investors react positively to ozone-emitting firms impacted by nonattainment designations. However, in the cross-section, heavy ozone-polluting multi-plant firms experience less favorable stock price reactions. In contrast, during attainment redesignations, the overall stock market reaction is negative on the extensive margin of pollution, but investors revise upwards the valuation of heavy ozone-polluting multi-plant firms. Our results suggest that the stock market internalizes the perceived benefits and costs of local environmental regulation. Further analysis of the underlying market forces reveals that while nonattainment designations benefit incumbent firms by decreasing competition and improving environmental performance, they also impose additional compliance costs.
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