Financial Constraints and Corporate Environmental Responsibility
54 Pages Posted: 24 Aug 2018 Last revised: 30 Jan 2019
Date Written: September 13, 2018
This paper analyzes the effect of financial constraints on firms' corporate social responsibility. Exploiting heterogeneity in firms' exposure to a monetary policy shock in the U.S., which reduced financial constraints for some firms, I find that firms increase their environmental responsibility. I use facility-level data to account for unobservable time-varying influences on pollution and find that toxic emissions decrease when parent companies are more exposed to the monetary policy shock. I further find that these facilities are also more likely to implement pollution abatement activities. Examining within-parent company heterogeneity I find that pollution abatement investments center on facilities at greater risk of facing additional costs due to environmental regulation. The findings are consistent with the idea that a reduction in financial constraints reduces pollution as it allows firms to implement pollution abatement measures.
Keywords: Corporate Social Responsibility, Emissions, Financial Constraints, Pollution, Bond Markets
JEL Classification: G32, E52, Q52, Q53
Suggested Citation: Suggested Citation