Working Paper: CEPR ID: DP16584
Authors: Sudipto Dasgupta; Thanh Huynh; Ying Xia
Abstract: We show that firms reduce emissions at their local plants following EPA enforcement actions against nearby plants of peer firms operating in the same product market. The emission reductions are larger for plants located close to socially responsible mutual funds (SRMFs) that hold the parent firm’s shares, and for plants belonging to firms with high operational flexibility. The close proximity to SRMFs is also associated with adoption of more abatement measures. While plants increase emissions again in the long run, these reversals are prevented for plants located close to SRMFs. We provide evidence that the threat of exit by SRMFs has real consequences for how the local plants respond to the enforcement action The results suggest that local SRMF monitoring complements EPA enforcement.
Keywords: socially responsible mutual funds; EPA enforcement; spillover effects; toxic emissions
JEL Codes: G23; G31; G38; K32; Q50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EPA enforcement actions (Q52) | emissions reductions at nearby plants (Q52) |
| higher enforcement penalties (K40) | stronger emissions reductions (Q52) |
| major environmental law violations (K32) | stronger emissions reductions (Q52) |
| proximity of socially responsible mutual funds (SRMFs) (G23) | larger decreases in emissions (Q52) |
| local monitoring by SRMFs (E17) | mitigated emissions increase in the long run (Q54) |