Working Paper: NBER ID: w24516
Authors: Jonathan Cohn; Tatyana Deryugina
Abstract: Using novel US environmental spill data, we document a robust negative relationship between the number of spills a firm experiences in a given year and its contemporaneous and lagged (but not future) cash flow. In addition, studying two natural experiments, we find an increase (decrease) in spills following negative (positive) shocks to a firm's financial resources, both in absolute terms and relative to control firms. Overall, our results suggest that firms' financial resources play an important role in their ability to mitigate environmental risk.
Keywords: Environmental spills; Financial resources; Cash flow; Natural experiments
JEL Codes: G32; Q52; Q53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative cash flow shocks (G59) | spill incidence (H84) |
| positive cash flow shocks (G19) | spill incidence (H84) |
| cash flow (E50) | spills from operator error (L99) |
| lagged cash flow (D25) | spills due to equipment failure (L99) |
| tighter cash constraints (E51) | strength of relationship between cash flow and spills (G32) |
| cash flow (E50) | number of spills (L71) |
| higher cash flow (G19) | fewer spills (L99) |