Minimizing Costs, Maximizing Sustainability

68 Pages Posted: 5 Oct 2020 Last revised: 9 Mar 2021

See all articles by Yaniv Grinstein

Yaniv Grinstein

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

Yelena Larkin

York University - Schulich School of Business

Date Written: June 29, 2019

Abstract

Do strong incentives to cut costs lead firms to neglect negative externalities? We find that cost-cutting incentives can be environmentally friendly. To arrive at this conclusion, we examine uniquely detailed plant-level data of private and public firms in the most polluting industry in the US - electric utilities. To establish causality, we exploit the staggered passage of restructuring legislation, which opened the market to competition and incentivized utilities to cut costs. Following the restructuring, plants moved to cheaper but less polluting production processes. In addition, competition forces have improved allocation of operation across competing plants, contributing further to pollution reduction.

Keywords: Product Market Competition, Environment,ESG

JEL Classification: G30, D22, Q52, Q53

Suggested Citation

Grinstein, Yaniv and Grinstein, Yaniv and Larkin, Yelena, Minimizing Costs, Maximizing Sustainability (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)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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)

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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