ACCOUNTING


Public environmental enforcement and private lender monitoring: Evidence from


environmental covenants Journal of Accounting and Economics, 77, 2-3, July 2023 online


EMMA WANG ASSISTANT PROFESSOR Charles H. Dyson School


of Applied Economics and Management Cornell SC Johnson College of Business Cornell University


LINK TO PAPER LINK TO VIDEO PLAYLIST


Co-authors • Emma Wang


Assistant Professor, Charles H. Dyson School of Applied


Economics and Management, Cornell SC Johnson College of Business, Cornell University


• Stacey Choy, Rotman School of Management, University of Toronto • Shushu Jiang, National University of Singapore Business School • Scott Liao, Rotman School of Management, University of Toronto


Summary Public regulatory enforcement is the primary force compelling firms to inter-


nalize the negative externalities of environmental pollution, but it may not be sufficient to tackle rapidly growing environmental challenges. Joint efforts be- tween public and private sectors to reduce corporate pollution are active, but results remain unclear. Wang et al. fill this gap by examining public environ- mental enforcement, environmental monitoring efforts, and the effectiveness of such monitoring in curbing corporate pollution.


Te authors study the importance of sustainable finance in achieving green environment goals, and whether and how public environmental enforce- ment affects private lenders’ monitoring efforts and their effectiveness. Tey find that environmental covenants are more effective in reducing borrowers’ toxic chemical releases. Tese findings corroborate the importance of public environmental enforcement in inducing lenders’ monitoring efforts, as well as the joint role of public enforcement and private lender monitoring in curbing corporate pollution. Public environmental enforcement may incentivize lend- ers to monitor their borrowers’ polluting activities by increasing the benefits of monitoring.


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RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2023 EDITION


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