The Hidden Cost of Going Green: Evidence from Firm-Level Violations

46 Pages Posted: 27 Apr 2022

See all articles by Arshia Farzamfar

Arshia Farzamfar

York University - Schulich School of Business

Pouyan Foroughi

York University - Schulich School of Business

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Date Written: April 9, 2022

Abstract

This paper explores whether corporations resort to cutting social investments when responding to pressures from environmental authorities and various stakeholders to adopt pro-environmental policies. Our study documents the first evidence of a robust negative relationship between a firm’s social and environmental responsibilities, as measured by the penalties imposed on the firm’s social and environmental violations, respectively. Notably, a 100% decrease (increase) in environmental penalties results in a 23% increase (decrease) in social fines, indicating that firms shift between environmental and social responsibilities. We further use variations in environmental penalties following the passing of the Citizens United Ruling to reinforce our baseline evidence. Overall, when a firm goes green, it commits fewer environmental violations at the expense of its social responsibility. This phenomenon becomes more severe when management is under pressure from external and internal forces.

Keywords: Environmental and Social Issues, Responsibility Shifting, Violation Tracker

JEL Classification: G23, G30, G34, M14

Suggested Citation

Farzamfar, Arshia and Foroughi, Pouyan and Ng, Lilian, The Hidden Cost of Going Green: Evidence from Firm-Level Violations (April 9, 2022). Available at SSRN: https://ssrn.com/abstract=4081186 or http://dx.doi.org/10.2139/ssrn.4081186

Arshia Farzamfar

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Pouyan Foroughi (Contact Author)

York University - Schulich School of Business ( email )

111 Ian MacDonald Blvd
North York, Ontario M3J 1P3
Canada

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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