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Review of Financial Studies Vol. 36 No. 9 2023

Joining Forces: The Spillover Effects of EPA Enforcement Actions and the Role of Socially Responsible Investors

Sudipto Dasgupta1; Thanh Huynh2; Ying Xia3

1 Chinese University of Hong Kong , ABFER, CEPR, and ECGI, Hong Kong SAR, China · 2 Cbus Super Fund, Monash Business School , Monash University, Australia · 3 Monash Business School, Monash University , Australia

Abstract

We find that firms reduce toxic emissions at their local plants following EPA enforcement actions against nearby plants operated by peer firms that compete in the same product market. These reductions are more pronounced for plants located near socially responsible mutual funds (SRMFs) that hold these plants’ parent firms’ shares. Close proximity to SRMFs is associated with real investment in abatement measures to mitigate emissions. While plants increase emissions again in the long run, such reversals do not occur in plants located near SRMFs. Taken together, our results suggest that local SRMFs complement EPA enforcement in influencing plants’ emissions.

DOI
10.1093/rfs/hhad015
Volume
36
Issue
9
Pages
3781-3824
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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