Financial Constraints and Corporate Environmental Responsibility

54 Pages Posted: 24 Aug 2018 Last revised: 21 Feb 2019

See all articles by Martin Richard Goetz

Martin Richard Goetz

Deutsche Bundesbank - Research Centre; Leibniz Institute for Financial Research SAFE

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

Goetz, Martin Richard, Financial Constraints and Corporate Environmental Responsibility (September 13, 2018). SAFE Working Paper No. 241, Available at SSRN: or

Martin Richard Goetz (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323

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