Does Private Equity Ownership Make Firms Cleaner? The Role Of Environmental Liability Risks

Abstract

Private equity (PE) ownership leads to a 70% reduction in the baseline rate of toxic pollution. The reduction is identified from the oil and gas industry using a nearest-neighbor research design estimated on novel satellite imaging and administrative datasets. I test several mechanisms that could explain this behavior. PE ownership’s impact on pollution is negatively related to plausibly exogenous increases in regulatory risks, contrary to what either a non-pecuniary or technological upgrade channel would predict. Exploiting specific private equity deals from the energy industry, I find that PE control and incentive to sell the company are the main drivers behind the results. Additional tests support the view that reducing toxic pollution maximizes PE exit value by making the portfolio company attractive to more buyers.

Author

Aymeric Bellon, Wharton