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The Reputational Penalties for Environmental Violations: Empirical EvidenceJonathan M. KarpoffUniversity of Washington - Michael G. Foster School of Business John R. Lott Jr.University of Maryland Foundation, University of Maryland Eric W. WehrlyAlbers School of Business & Economics, Dept of Finance; University of Washington - Department of Finance and Business Economics Journal of Law and Economics, Forthcoming Abstract: 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 Accepted Paper SeriesDate posted: August 16, 2005Suggested CitationContact Information
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