Author : Xiaoliu Xu (Ph. D. in applied economics)
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Book Synopsis The Effects of Voluntary Pollution Control Programs on Firm Performance by : Xiaoliu Xu (Ph. D. in applied economics)
Download or read book The Effects of Voluntary Pollution Control Programs on Firm Performance written by Xiaoliu Xu (Ph. D. in applied economics) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Governments around the world increasingly emphasize voluntary environmental overcompliance as a viable approach of pollution control. This shift in paradigm led the United States to pass the Pollution Prevention Act (PPA) in 1990, which created a national policy to have pollution prevented or reduced at the source wherever possible. Similarly, the United Nations reached an agreement to protect the environment during the ``Earth Summit'' in Rio de Janeiro in 1992. Four years later, in 1996, the International Standardization Organization (ISO) published an international voluntary standard, ISO 14001, to set out the requirements for an environmental management system (EMS), which is defined as ``part of the management system used to manage environmental aspects, fulfill compliance obligations, and address risks and opportunities''. My dissertation seeks to increase the understanding of how these voluntary pollution control programs affects firm financial and environmental performance heterogeneously. The first chapter investigates the heterogeneous effects of ISO 14001 adoption on firm financial performance. A voluntary pollution program can affect firm financial performance through two main ways: improved market performance and reduced costs/improved production efficiency. However, firms with different characteristics may response differently to the ISO adoption. For instance, larger firms are usually associated with superior financial resources and are therefore more resilient regarding operational changes like the implementation of ISO 14001. Accordingly, we argue that ISO 14001 adoption affects firm financial performance heterogeneously and aim to uncover this heterogeneity in this chapter. Based on a panel of 5,245 South Korean manufacturing firms, we utilize the machine learning approaches, namely causal tree and causal forest, to reveal the heterogeneous effects successfully. Specifically, our results indicate that all groups of firms are able to increase their sales revenue with the certification, on average. When it comes to profitability, we notice a significant heterogeneity in the certification's effects. Specifically, older firms that have a lower debt-to-equity ratio, with higher advertising investment, and are located outside the electronic component industry are able to increase their profitability by about 5\%. The second chapter examines how 43 U.S. Environmental Protection Agency(EPA)-based voluntary pollution prevention (P2) activites affects firm total toxic releases heterogeneously. We compile a panel of 1286 U.S. firms over 1988-2015 and employ both conventional and novel approaches in this study. Our regression results indicate that the adoption of P2 practices can significantly reduce firm toxic pollution on average. However, the effectiveness of P2 practices vary by their functional characteristics. Specifically, our principal component analysis results indicate that P2 practices that involves changes in procedure and input are most effective, conversely, P2 practices related to changes in equipment increase the toxic releases. Our machine learning analysis confirms the theory that firms investing more in research and development (i.e., greater than 1 billion dollars), selling final goods to the market, or involving more chemicals (i.e., more than 25 types of chemicals) in their operation processes are more likely to achieve greater pollution reduction through P2 adoption. The third chapter explores how P2 adoption affects firm financial performance. The analysis is undertaken based on a panel of 1,611 US firms in the S\&P Compustat database over the period 1988-2015. Our results indicate that the average impact on financial indicators is insignificant, which is in consistent with the finding in the first chapter. However, unlike the first chapter, we couldn't identify a boost effect of P2 adoption on firm total sales revenue. This is a plausible result since firms adopt P2 for different purposes. For ISO 14001, as identified by many previous studies, one of the main motivations of being certified is to attract ``green'' customers, fulfill the requests by foreign markets and boost sales (A li et al., 2020; Sam & Song, 2022). As for P2 adoption in the U.S. context, many companies implement EPA-based pollution prevention practices with the main intention to reduce TRI chemical releases and relax potential regulatory scrutiny \shortcite{innes2008voluntary}, and the financial benefits are often not a primary concern. Therefore, with the associated P2 implementation costs and no significant boost in sales, firms profitability will more likely be negatively affected.