Does Private Equity Ownership Make Firms Cleaner? The Role Of Environmental Liability Risks
57 Pages Posted: 12 Jun 2020 Last revised: 17 Oct 2022
Date Written: May 18, 2020
Abstract
This paper shows that private equity (PE) ownership reduces pollution when the target company faces high environmental enforcement or political risks. Conversely, PE-backed firms increase pollution when environmental liability risks are low, as shown by a novel natural experiment that reduced these risks for projects located on Native American land. Exploiting specific private equity deals within the energy industry, I find that PE governance mainly drove the results. Overall, maximizing shareholder value may benefit environmental outcomes when the potential liabilities of polluting are high
Keywords: Private equity, environmental externalities, Sustainable finance
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