The Hidden Cost of Going Green: Evidence from Firm-Level Violations
46 Pages Posted: 27 Apr 2022
Date Written: April 9, 2022
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: Suggested Citation