The reputational penalties for environmental violations: empirical evidence

This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. Firms that violate environmental laws suffer statistically significant losses in the market value of firm equity. The losses, however, ar...

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Bibliographic Details
Published in:The Journal of law & economics 2005-10, Vol.XLVIII (2), p.653-676
Main Authors: Karpoff, Jonathan M, Lott, Jr., John R., Wehrly, Eric W
Format: Article
Language:English
Subjects:
Business studies
Environmental policy
Equity
Legal aspects
Penal sanctions
Regulatory policy
U.S.A
Online Access:Get full text
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Summary:This paper examines the sizes of the fines, damage awards, remediation costs, and market value losses imposed on companies that violate environmental regulations. Firms that violate environmental laws suffer statistically significant losses in the market value of firm equity. The losses, however, are of similar magnitudes to the legal penalties imposed, and in the cross section, the market value loss is related to the size of the legal penalty. Thus, environmental violations are disciplined largely through legal and regulatory penalties, not through reputational penalties. Reprinted by permission of the University of Chicago Press. © All rights reserved
ISSN:0022-2186