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

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

Sudipto Dasgupta, Thanh D. Huynh, Ying Xia

Series number :

Serial Number: 
790/2021

Date posted :

October 06 2021

Last revised :

October 06 2021
SSRN Share

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 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.

Authors

Real name:
Thanh D. Huynh
Real name:
Ying Xia