Do Firms Become More Toxic after Going Public? Evidence from Hydraulic Fracturing Operators

53 Pages Posted: 21 Nov 2022

See all articles by Wen He

Wen He

Monash University

Yile (Anson) Jiang

University of Melbourne, Department of Accounting

Jin Zhang

Monash University

Date Written: November 7, 2022

Abstract

How does access to the public equity market affect firms’ environmental externality? We answer this question by examining the use of toxic chemicals by hydraulic fracturing (HF) operators in their drilling and fracturing operations. Using data from 69,070 wells and a difference-in-differences design, we find that after their initial public offerings (IPO), the operators use more toxic chemicals per well, compared with non-IPO operators that drill wells in the same period and the same oil basin. Further analysis suggests that IPO operators either drill longer horizontal tunnels or develop new fracturing liquids that are more toxic, both of which can help increase the productivity of the wells. The impact of IPOs on toxicity is greater for operators issuing more equity and using more proceeds to invest. Finally, we find that the concentration of the toxic chemicals increases in surface water after the HF operators go public. Our results suggest that going public exacerbates the negative externality and environmental concerns.

Keywords: Corporate social responsibility, Environment, Initial public offerings, Externalities, Fracturing, Oil and gas development

JEL Classification: D62, G32, G34, L71, O3, Q50

Suggested Citation

He, Wen and Jiang, Yile and Zhang, Jin, Do Firms Become More Toxic after Going Public? Evidence from Hydraulic Fracturing Operators (November 7, 2022). Available at SSRN: https://ssrn.com/abstract=4270835 or http://dx.doi.org/10.2139/ssrn.4270835

Wen He (Contact Author)

Monash University ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Yile Jiang

University of Melbourne, Department of Accounting ( email )

198 Berkeley Street
Carlton, Victoria 3053
Australia

Jin Zhang

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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