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The Spillover Effects of EPA Enforcement Actions...
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ECGI New Working Paper Alert
ECGI Finance Series 790/2021
Monday 11 October 2021
Joining Forces: The Spillover Effects of
EPA Enforcement Actions and the Role of
Socially Responsible Investors


Sudipto Dasgupta, Chinese University of Hong Kong, ABFER, CEPR, and ECGI
Thanh D. Huynh, Monash University
Ying Xia, Monash University 

Keywords:

Socially Responsible Mutual Fund • EPA Enforcement • Spillover Effects • Toxic Emissions
 
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 the 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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Submitted by

Professor Sudipto Dasgupta ECGI Profile
Professor of Finance
Chinese University of Hong Kong


Email: s.dasgupta@cuhk.edu.hk
The ECGI is an international scientific non-profit association providing a forum for debate and dialogue between academics, legislators and practitioners, focusing on major corporate governance issues. 
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