Environmental Violations in the Power Sector: Accountability and Community Welfare

56 Pages Posted: 20 Sep 2023

See all articles by Pouyan Foroughi

Pouyan Foroughi

York University - Schulich School of Business

Hosein Hamisheh Bahar

York University - Schulich School of Business

Lilian Ng

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

Date Written: September 2, 2023

Abstract

This study tackles a critical issue in business ethics: how firms respond after their plants violate environmental regulations. Our stacked difference-in-differences (DiD) analysis shows that non-compliant plants significantly reduce air pollution and electricity output while implementing long-term strategies to prevent future violations. These changes are driven by the utility firms' organizational structure, which fosters economies of scale, supported by government subsidies and environmental enforcement efforts. We observe significant post-violation increases in total assets, capital expenditures, long-term debt, revenues, expenses, and electricity prices. Despite these rising costs and revenues, operating income remains steady. While these measures are crucial for mitigating environmental harm, the shifting of compliance costs to communities raises serious concerns about social welfare.

Keywords: Environmental Violations, Stakeholder Theory, Electricity Prices, Community Welfare

JEL Classification: K32, Q48, Q50, D60, H23

Suggested Citation

Foroughi, Pouyan and Hamisheh Bahar, Hosein and Ng, Lilian, Environmental Violations in the Power Sector: Accountability and Community Welfare (September 2, 2023). Available at SSRN: https://ssrn.com/abstract=4559526 or http://dx.doi.org/10.2139/ssrn.4559526

Pouyan Foroughi

York University - Schulich School of Business ( email )

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

Hosein Hamisheh Bahar (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, 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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