Firm Internal Network, Environmental Regulation, and Plant Death

43 Pages Posted: 9 Nov 2018

See all articles by Jingbo Cui

Jingbo Cui

Duke Kunshan University

GianCarlo Moschini

Iowa State University - Department of Economics

Date Written: October 2, 2018

Abstract

This paper examines the role of a firm’s internal network in determining plant shutdown decisions in response to environmental regulations. Using unique plant-level data for U.S. manufacturing industries from 1990 to 2008, we find evidence that, in response to increasingly stringent environmental regulations at the county level, multi-plant firms do exercise their greater flexibility in adjusting production, relative to single-plant firms. Specifically, in regulated counties, the likelihood of a plant shutting down is higher for multi-plant firms. Moreover, we measure the firm internal network effect at the local, neighborhood, and the wider-area levels, as defined by the number of affiliated plants clustered in different regional levels. Their effects on plant closure decisions for dirty subsidiaries vary with the network level. We further decompose the neighborhood network into those in regulated and unregulated neighborhood counties, and examine how these network metrics are associated with closure decisions of dirty plants affiliated with multi-plant firms. The presence of more sibling plants residing in neighboring counties that are free from regulatory controls are associated with a higher closure probability of dirty plants in a regulated county.

Keywords: Agglomeration, Clean Air Act Amendments, Multinationals, Multi-Plant Firms, Network Effects

JEL Classification: F18, Q56, R11

Suggested Citation

Cui, Jingbo and Moschini, GianCarlo, Firm Internal Network, Environmental Regulation, and Plant Death (October 2, 2018). Available at SSRN: https://ssrn.com/abstract=3267884 or http://dx.doi.org/10.2139/ssrn.3267884

Jingbo Cui (Contact Author)

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, Jiangsu 215316
China

GianCarlo Moschini

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

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