Working Paper: NBER ID: w29740
Authors: Jianqiang Chen; Peifang Hsieh; Pohsuan Hsu; Ross Levine
Abstract: The 2008 Apex Oil court decision reduced the circumstances under which specific environmental clean-up obligations were dischargeable in Chapter 11, potentially affecting the securities prices, credit conditions, and pollution practices of corporations not in Chapter 11. We discover that among financially stressed firms with those specific environmental liabilities, bond and stock prices dropped after Apex. Moreover, those firms (1) experienced a tightening of credit conditions (e.g., paying higher risk premia on debts and receiving lower bond ratings), (2) intensified pollution prevention activities, and (3) reduced the emissions of pollutants causing environmental damages no longer dischargeable in Chapter 11. These findings hold among firms nationwide, not only those within the jurisdiction of the Seventh Circuit court, which issued the Apex decision, suggesting that Apex had a nationwide impact.
Keywords: environmental liabilities; borrowing costs; pollution prevention; apex oil ruling
JEL Codes: G00; K00; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| apex oil ruling (L71) | cumulative abnormal returns (CARs) (C22) |
| apex oil ruling (L71) | borrowing conditions (F34) |
| apex oil ruling (L71) | pollution prevention activities (Q52) |
| apex oil ruling (L71) | emissions of RCRA-regulated pollutants (L99) |