The Limits of Limited Liability: Evidence from Industrial Pollution

• 成果类型: Article
• 署名作者: Akey, Pat; Appel, Ian
• 署名单位: University of Toronto; Boston College
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12978
• 发表日期: 2021
• 页码: 5-55
• 关键词: RELEASE INVENTORY; UNITED-STATES; moral hazard; RISK; governance; IMPACT; safety; firm; COMPENSATION; INFORMATION

摘要

We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference-in-differences framework, we find that stronger liability protection for parents leads to a 5% to 9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than increased production. Cross-sectional tests suggest convexities associated with insolvency and executive compensation drive heterogeneous effects. Overall, our findings highlight the moral hazard problem associated with limited liability.