Mandatory Pollution Abatement, Financial Constraint and Firm Investment

83 Pages Posted: 1 Oct 2018 Last revised: 4 Mar 2020

See all articles by Tri Vi Dang

Tri Vi Dang

Columbia University - Department of Economics

Youan Wang

The University of Hong Kong

Zigan Wang

The University of Hong Kong - School of Economics and Finance; Columbia University

Date Written: February 5, 2020

Abstract

This paper analyses the effect of mandatory pollution abatement on U.S. corporate investment and performance and shows that environmental regulation can stimulate investment in innovation. The following set of theoretical and empirical results are presented. For financially unconstrained firms, mandatory pollution abatement leads to more current R&D investment, more future investment in pollution abatement, reduces current profits, increases future profits and reduces the market value of the firm. However, if firms are financially constrained three of the five consequences are different. It leads to less current R&D investment, less future investment in pollution abatement and lower future profits.

Keywords: Regulation, Mandatory Pollution Abatement, R&D, Firm Value

JEL Classification: G32, G38, Q58

Suggested Citation

Dang, Tri Vi and WANG, Youan and Wang, Zigan, Mandatory Pollution Abatement, Financial Constraint and Firm Investment (February 5, 2020). Available at SSRN: https://ssrn.com/abstract=3257675 or http://dx.doi.org/10.2139/ssrn.3257675

Tri Vi Dang

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Youan WANG

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong
China
59353876 (Phone)

Zigan Wang (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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