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Discussion Paper Details

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Title: Joining Forces: The Spillover Effects of EPA Enforcement Actions and the Role of Socially Responsible Investors

Author(s): Sudipto Dasgupta, Thanh Huynh and Ying Xia

Publication Date: September 2021

Keyword(s): EPA enforcement, Socially responsible mutual funds, spillover effects and Toxic emissions

Programme Area(s): Financial Economics

Abstract: We show that firms reduce emissions at their local plants following EPA enforcement actions against nearby plants of peer firms operating in the same product market. The emission reductions are larger for plants located close to socially responsible mutual funds (SRMFs) that hold the parent firm's shares, and for plants belonging to firms with high operational flexibility. The close proximity to SRMFs is also associated with adoption of more abatement measures. While plants increase emissions again in the long run, these reversals are prevented for plants located close to SRMFs. We provide evidence that the threat of exit by SRMFs has real consequences for how the local plants respond to the enforcement action The results suggest that local SRMF monitoring complements EPA enforcement.

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Bibliographic Reference

Dasgupta, S, Huynh, T and Xia, Y. 2021. 'Joining Forces: The Spillover Effects of EPA Enforcement Actions and the Role of Socially Responsible Investors'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16584