Waiting or Acting: The Effects of Environmental Regulatory Uncertainty

71 Pages Posted: 30 Mar 2022 Last revised: 7 Dec 2023

See all articles by Brooke Wang

Brooke Wang

Miami University of Ohio - Richard T. Farmer School of Business Administration

Date Written: February 7, 2022

Abstract

This paper studies the effects of environmental regulatory uncertainty on firms' environmental performances and efforts. I find that firms reduce toxic emissions under high climate policy uncertainty. Instead of a "wait-and-see" strategy, firms take pre-emptive actions by accelerating environmental innovation and adopting abatement technologies when climate policy uncertainty arises. Further analyses suggest that institutional investors withdraw capital from polluting firms under high uncertainty of climate regulation. To establish the causal link, I exploit the standard deviation of the pro-climate votes in the Senate on environmental and climate change-related bills to instrument the climate policy uncertainty index. I suggest that the effect of environmental regulatory uncertainty on reducing emissions is likely to be causal.

Keywords: Environmental regulatory uncertainty, pollutant emissions, environmental innovation, emission abatement, institutional holdings, and climate finance

Suggested Citation

Wang, Jiawei, Waiting or Acting: The Effects of Environmental Regulatory Uncertainty (February 7, 2022). Available at SSRN: https://ssrn.com/abstract=4028885 or http://dx.doi.org/10.2139/ssrn.4028885

Jiawei Wang (Contact Author)

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

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