An analysis of firms' success in pollution control

Abstract

This dissertation explores the firm-level, state, and federal characteristics that explain pollution emissions during 1988-1996. Differences in pollution approach between different types of firms and the states in which they operate provide a unique research setting to investigate the following questions: (1) How do firms respond to differing levels of state environmental regulation? (2) What effect does a change in regime at the federal level have on firm pollution control? (3) How do firms with favorable environmental reputations compare to firms with unfavorable environmental reputations regarding emissions? (4) What firm characteristics are related to environmental performance (e.g., profitability, size, industry)? At the firm level, I hypothesize that emissions will be lower for firms that: (1) have established a 'green' reputation, and (2) are more profitable per pound of emission. At the state level, I hypothesize that firms with weak environmental reputations with a greater proportion of emissions in states with weak environmental regulations will be more profitable than firms with weak environmental reputations with a lower proportion of emissions in those states. At the federal level, the sub period 1988-1992, under a pro-industry Republican administration, has weaker environmental regulations than the sub period 1993-1996, under a pro-environmental Democratic administration. I predict that emissions will decrease faster during the latter sub-period. I test the predictions with ordinary least squares regressions, corrected for autocorrelation. Data consist of firm-level pollution emission data from the Toxic Release Inventory (TRI) and financial data from Compustat. Of firms with unfavorable environmental reputations, those that emit a greater percentage of their pollution in pro-industry states are more profitable. This result provides evidence to suggest that governmental regulation does influence where firms choose to emit. The results indicate firms that emit more of their emissions in pro-industry states for the 1993-1996 sub-period exhibit larger decreases in overall emissions during that time. This suggests firms that emit more in pro-industry states during the 1993-1996 sub-period have organizational slack available to meet the increase in federal environmental regulations. Other results indicate that firms with favorable environmental reputations did not reduce emissions significantly more than firms with unfavorable environmental reputations.