Tackling competition by reducing emissions: Private firms’ polluting behavior under peer IPOs

Abstract

We examine the effect of competition on private firms' polluting behavior. Using detailed establishment-level data on sulfur dioxide emissions covering 1998 to 2013 and a generalized difference-in-differences empirical strategy, we find that competition caused by peer IPO has a negative impact on a firm's sulfur dioxide emissions. This effect is more pronounced when the focal firm is in a region with more market competition or stronger environmental regulation, when the focal firm is larger than or located closer to the IPO firm, or when post-IPO performance is better or the raised amount of proceeds of IPO is larger. Mechanism analyses show that focal firms reduce sulfur dioxide emissions by both increasing environmental investment and improving green research and development. The main results cannot be explained by an imitation effect, a decrease in focal firm's production, or enhanced regulation.