Does Private Equity Ownership Make Firms Cleaner? The Role Of Environmental Liability Risks

82 Pages Posted: 12 Jun 2020 Last revised: 24 Nov 2021

See all articles by Aymeric Bellon

Aymeric Bellon

University of Pennsylvania, The Wharton School

Date Written: May 18, 2020

Abstract

This paper studies how Private Equity (PE) firms affect firms' environmental outcomes in the oil and gas industry. On average PE ownership leads to a 70% reduction in the use of toxic chemicals and a 50% reduction in satellite-based measures of CO2 emissions. However, this average effect hides significant heterogeneities. PE-backed firms increase pollution in locations and periods where environmental liability risk is low, as shown by a novel natural experiment that reduced these risks for projects located on federal and Native American territories. Overall, high-powered incentives to maximize shareholder value may benefit environmental outcomes when the risk of environmental regulation is high.

Keywords: Private equity, environmental externalities, Sustainable finance, satellite data

Suggested Citation

Bellon, Aymeric, Does Private Equity Ownership Make Firms Cleaner? The Role Of Environmental Liability Risks (May 18, 2020). European Corporate Governance Institute – Finance Working Paper No. 799/2021, Available at SSRN: https://ssrn.com/abstract=3604360 or http://dx.doi.org/10.2139/ssrn.3604360

Aymeric Bellon (Contact Author)

University of Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://www.aymericbellon.com/

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