Firm-Level Financial Resources and Environmental Spills
Using novel US environmental spill data, we document a robust negative relationship between the number of spills a firm experiences in a given year and its contemporaneous and lagged (but not future) cash flow. In addition, studying two natural experiments, we find an increase (decrease) in spills following negative (positive) shocks to a firm's financial resources, both in absolute terms and relative to control firms. Overall, our results suggest that firms' financial resources play an important role in their ability to mitigate environmental risk.
We would like to thank Andres Almazan, Aydogan Alti, Cesare Fracassi, Sam Krueger, Tim Landvoigt, Inessa Liskovich, Daniel Neuhann, Laura Starks, Sheridan Titman, Mindy Zhang, and seminar participants at the University of Texas-Austin, EnergyFest, and the University of Illinois for helpful comments. Muye Chen provided superb research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Tatyana Deryugina holds slightly over $6,200 in BP stock, which she has owned since 2010.