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Environmental inefficiency and bond credit rating

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  • Chabowski, Brian
  • Chiang, Wen-Chyuan
  • Deng, Kailing
  • Sun, Li

Abstract

This study examines the impact of a firm’s polluting activities (measured as environmental inefficiency) on the firm’s bond credit rating. We posit that firms with excessive polluting activities (i.e., a high level of environmental inefficiency) receive low bond ratings because prior research links pollution reduction to better firm performance and outcomes. Using a 29-year panel sample with 4969 firm-year observations (representing 310 unique firms) from 1987 to 2015, we find a significant negative relation between environmental inefficiency and bond ratings. Our results still hold after a battery of robustness checks. In addition, we find that our results are largely driven by firms that are not near a broad bond rating change (i.e., firms without a plus or minus specification in their bond ratings).

Suggested Citation

  • Chabowski, Brian & Chiang, Wen-Chyuan & Deng, Kailing & Sun, Li, 2019. "Environmental inefficiency and bond credit rating," Journal of Economics and Business, Elsevier, vol. 101(C), pages 17-37.
    • Handle: RePEc:eee:jebusi:v:101:y:2019:i:c:p:17-37
    DOI: 10.1016/j.jeconbus.2018.08.003
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    More about this item

    Keywords

    Environmental inefficiency; Environmental activities; Bond credit ratings;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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