Financial Constraints and Corporate Environmental Policies

73 Pages Posted: 30 Aug 2017 Last revised: 18 May 2020

See all articles by Qiping Xu

Qiping Xu

University of Illinois Urbana Champaign

Taehyun Kim

Chung-Ang University

Date Written: May 15, 2020


This paper documents evidence that financial constraints increase firms' toxic emissions given that firms actively trade off abatement costs against potential legal liabilities. Exploring three quasi-natural experiments in which firms' financial resources are likely exogenously impacted, we find that relaxing financial constraints reduces U.S. public firms' toxic releases. The effects of financial constraints on toxic releases are amplified when regulatory enforcement weakens and when myopic managers emphasize short-term earnings performance. Overall, our evidence highlights the real effects of financial constraints in the form of environmental pollution, which is a costly negative externality imposed on society and public health.

Keywords: Financial Constraints, Corporate Environmental Policies

JEL Classification: G32

Suggested Citation

Xu, Qiping and Kim, Taehyun, Financial Constraints and Corporate Environmental Policies (May 15, 2020). Available at SSRN: or

Qiping Xu (Contact Author)

University of Illinois Urbana Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Taehyun Kim

Chung-Ang University ( email )

Heuksok-ro 84, Dongjak-gu
Seiul, 06974
Korea, Republic of (South Korea)
8228205627 (Phone)

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