Environmental Risk Management and the Cost of Capital
Strategic Management Journal, Forthcoming
53 Pages Posted: 12 May 2008
Our study of 267 U.S. firms shows that improved environmental risk management is associated with a lower cost of capital. Our findings provide an alternative perspective on the environmental - economic performance relationship, which has been dominated by the view that improvements in economic performance stem from better resource utilization. Firms also benefit from improved environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt. These findings help build better theory regarding the outcomes of strategic improvements in environmental risk management.
Keywords: environmental risk management, cost of capital, environmental performance, environmental strategy
JEL Classification: G31, G32, G39, M14, Q29
Suggested Citation: Suggested Citation