Financial Constraints and Corporate Environmental Policies

Qiping Xu, Taehyun Kim

Research output: Contribution to journalArticlepeer-review


This paper documents evidence that financial constraints increase firms' toxic emissions given that firms actively trade off abatement costs against potential legal liabilities. Exploring three quasi-natural experiments in which firms' financial resources are likely exogenously affected, we find that relaxing financial constraints reduces U.S. public firms' toxic releases. The effects of financial constraints on toxic releases are amplified when regulatory enforcement and external monitoring weaken. Overall, our evidence highlights the real effects of financial constraints in the form of environmental pollution, which is a costly negative externality imposed on society and public health.

Original languageEnglish (US)
Pages (from-to)576-635
Number of pages60
JournalReview of Financial Studies
Issue number2
StatePublished - Feb 1 2022


  • G32
  • G38
  • K32
  • Q50

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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