Mandatory Pollution Abatement, Financial Constraint and Firm Investment

1 Pages Posted: 1 Oct 2018 Last revised: 20 Dec 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: December 2020

Abstract

We provide a theoretical and empirical analysis of how pollution abatement regulation or the designation of nonattainment status affects corporate investment and performance. If consumers value environmental awareness, spending on mandatory pollution abatement and other investment are complements for financially unconstrained firms but substitutes for financially constrained firms. Financially unconstrained firms invest more, have lower current profits but higher future profits while constrained firms invest less, have stable current profits and lower long-term profits. This paper shows that firms’ financial resources are determinants of whether environmental regulation crowds out or stimulates R&D investment and capital expenditure.

Keywords: Mandatory Pollution Abatement, Financial Constraint, R&D, Capital Expenditure

JEL Classification: G32, G38, Q58

Suggested Citation

Dang, Tri Vi and WANG, Youan and Wang, Zigan, Mandatory Pollution Abatement, Financial Constraint and Firm Investment (December 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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