The Reputational Penalties for Environmental Violations: Empirical Evidence
Jonathan M. Karpoff
University of Washington - Michael G. Foster School of Business
John R. Lott Jr.
Crime Prevention Research Center
Eric W. Wehrly
Western Washington University - Finance; Seattle University - Albers School of Business & Economics
Journal of Law and Economics, Forthcoming
This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. Firms violating environmental laws suffer statistically significant losses in the market value of firm equity. The losses, however, are of similar magnitudes to the legal penalties imposed; and in the cross section, the market value loss is related to the size of the legal penalty. Thus, environmental violations are disciplined largely through legal and regulatory penalties, not through reputational penalties.
Number of Pages in PDF File: 35
Keywords: Environmental violations, corporate misconduct, legal penalties, reputation costs
JEL Classification: K32, K42, Q58
Date posted: August 16, 2005
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