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Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing

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  • Lirong Liu

    (Department of Economics and International Business, Sam Houston State University)

  • Mary F. Evans

    (The Robert Day School of Economics and Finance, Claremont McKenna College)

  • Sarah Stafford

    (College of William and Mary)

Abstract

We explore how limits to our insight on the underlying decision-making structure of regulated entities may affect the conclusions we draw about the likely impacts of environmental policies, with a focus on environmental auditing. We examine the conditions under which a multi-facility firm chooses to adopt a standardized auditing. Our firm-level empirical analysis confirms that a uniform auditing outcome is less likely among firms (1) with a more heterogeneous portfolio of facilities, and (2) that are less likely to make decision errors. We examine the implications of adding controls for firm decision-making structure in a facility-level empirical analysis of auditing’s impact on compliance. Our results suggest that the estimated compliance impact of auditing varies depending on whether or not we include these controls.

Suggested Citation

  • Lirong Liu & Mary F. Evans & Sarah Stafford, 2012. "Firm Decision-making Structure and Compliance with Environmental Regulations: Evidence from Environmental Auditing," Working Papers 1206, Sam Houston State University, Department of Economics and International Business.
    • Handle: RePEc:shs:wpaper:1206
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    References listed on IDEAS

    as
    1. Alexander Pfaff & Chris William Sanchirico, 2004. "Big field, small potatoes: An empirical assessment of EPA's self-audit policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(3), pages 415-432.
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    5. Mary Evans & Lirong Liu & Sarah Stafford, 2011. "Do environmental audits improve long-term compliance? Evidence from manufacturing facilities in Michigan," Journal of Regulatory Economics, Springer, vol. 40(3), pages 279-302, December.
    6. Khanna Madhu & Widyawati Diah, 2011. "Fostering Regulatory Compliance: The Role of Environmental Self-Auditing and Audit Policies," Review of Law & Economics, De Gruyter, vol. 7(1), pages 125-160, May.
    7. Sarah L. Stafford, 2011. "Do Environmental Audits Improve Long-term Compliance? Evidence from Manufacturing Facilities in Michigan," Working Papers 117, Department of Economics, College of William and Mary.
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