Environmental liability and the capital structure of firms [An article from: Resource and Energy Economics]

This digital document is a journal article from Resource and Energy Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper analyses the impact of environmental liability regimes on the capital structure of firms. We show that imposing environmental liability only on polluting firms, with limited liability, increases use of bank debt. Extending environmental liability to banks lowers bank borrowing relative to liability only on firms, with an ambiguous effect relative to no liability. Using US industry-level data we estimate a reduced-form model of bank borrowing by firms and show that the introduction of environmental liability only on firms increased bank borrowing by 15-20%, but when liability was extended to banks, borrowing returned to a level slightly higher than with no liability.