PARTICIPATION OF FIRMS IN VOLUNTARY ENVIRONMENTAL PROTECTION PROGRAMS: AN ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY AND CAPITAL MARKET PERFORMANCE

Authors

  • FEI YU

    1. Yu: Assistant Professor, Department of Economics, Colby College, Diamond, 3rd floor, 5230 Mayflower Hill, Waterville, ME 04901. Phone 207-859-5245, Fax 207-859-5229, E-mail feiyu@colby.edu
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    • I would like to thank Robert Stavins, Cary Coglianese, Dan Fiorino, and three anonymous referees for comments on various drafts as well as Julie K. Spyres and Jenifer Nash for providing information about the EPA's Performance Track program.


Abstract

The Environmental Protection Agency (EPA) employs voluntary programs as a policy instrument to encourage firms to go beyond mere compliance with laws and regulations in protecting the environment. Based on event study methodology, this paper tests for abnormal stock market returns from membership in the National Environmental Performance Track (NEPT) program. The analysis shows that there is strong evidence that acceptance of a facility to the NEPT adds significantly to the market capitalization of the accepted firms. Corporate social responsibility can be financially rewarding for firms and voluntary programs of the EPA can be an effective complement to performance-based regulatory instruments. (JEL G14, Q58)

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