Corporate Environmental Policy and Product Market Competition

51 Pages Posted: 5 Oct 2020 Last revised: 7 Oct 2020

See all articles by Yaniv Grinstein

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Yelena Larkin

York University - Schulich School of Business

Date Written: June 29, 2019

Abstract

Does product market competition affect corporate environmental policy? It is commonly believed that firms in competitive environments have stronger incentives to cut costs, which could lead them to neglect negative externalities. However, we find that cost cutting incentives could in fact be environmentally friendly. To arrive at this conclusion, we use a quasi-natural experiment of the restructuring of the utility industry in the US, which has opened the market to competition. We find that the restructuring has incentivized utilities to move to cheaper, but also less polluting, fossil fuels. Moreover, competition forces have smoothed out inefficient peak-capacity operation across competing plants, also contributing to reduction in pollution.

Keywords: Product Market Competition, Environment,ESG

JEL Classification: G30, D22, Q52, Q53

Suggested Citation

Grinstein, Yaniv and Larkin, Yelena, Corporate Environmental Policy and Product Market Competition (June 29, 2019). European Corporate Governance Institute – Finance Working Paper 702/2020, Available at SSRN: https://ssrn.com/abstract=3701794 or http://dx.doi.org/10.2139/ssrn.3701794

Yaniv Grinstein (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Yelena Larkin

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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