"Public Vs. Private Firms: Energy Efficiency, Toxic Emissions And Abatement Spending"

Abstract

In this paper, we examine the effect of ownership status on three environmentally relevant variables: energy efficiency, toxic emissions and spending on pollution abatement. Prior research has demonstrated that public firms invest less than private firms and suggests this difference in investment behavior is due to ‘short-termism’ - pressure from capital markets to strongly favor short over long term earnings. We extend this logic to other firm behavior, examining whether publicly owned plants invest in energy efficiency and pollution reduction differently than privately owned plants. Using data from the US Census of Manufactures from 1980-2009, linked with information on pollution from the EPA Toxic Release Inventory (TRI) and pollution abatement spending from the PACE survey, we find some evidence that publicly owned plants are less energy efficient, release more toxic emissions and spend less on pollution abatement than their privately owned counterparts. We also examine how different sources of external pressures alter these results and find that increased regulatory scrutiny is correlated with increased energy efficiency, toxic emissions and abatement spending. More concentrated institutional ownership in public firms is associated with lower energy efficiency as is a greater brand focus. These latter results are broadly consistent with the idea that publicly owned firms respond to pressures from capital markets with a reduced focus on environmentally relevant variables.