Binish Rijal
Postdoctoral Scholar in Economics
Research Portfolio
Environmental
Economics & Policy
Corporate
Welfare Studies
Development
Economics
Event Study
Analysis
Research
Statement
High Priority Violations and Intra-firm Pollution Substitution (with N. Khanna) Journal of Environmental Economics & Management, Revise & Resubmit
This paper finds that pollution regulations to control facility toxic emissions have limited effectiveness because firms switch production from one facility to another which is subject to less stringent regulations. We estimate the sign and the magnitude of such "intra-firm pollution substitution" associated with the High Priority Violations Policy (HPVP) under the Clean Air Act. Using 42,162 facility-year observations for 7,058 polluting facilities across all polluting industries in the U.S., we find strong evidence of intra-firm pollution substitution associated with the HPVP. On average, a compliant facility increased its toxic air emissions by about 22% (2,112 lbs.) if it had at least one other sister facility, within the same 6-digit NAICS industry code concurrently under violation. The magnitude of such intra-firm pollution substitution was stronger towards compliant facilities with no prior history of high priority violation as well as towards those owned by publicly traded parent companies. We also find that substitution of pollution from a violating sister facility increases the risk of high priority violation among currently compliant facilities.
Voluntary Pollution Abatement as an Indirect Source of Intra-firm Leakage (with N. Khanna) Working Paper
We examine the sign and the magnitude of intra-firm leakage triggered by a facility’s enrollment in voluntary Pollution Prevention (P2). Using 63,424 facility-year observations between 2003 and 2016 for 8,278 polluting facilities belonging to 2,409 immediate parent firms across the U.S., we find some evidence of pollution leakage associated with P2 participation. On average, a non-participant facility increased its toxic releases by about 7 percent if it had a sister facility within the same 6-digit NAICS industry code concurrently under P2 participation. We also find a distinct time pattern in the estimated magnitude of P2-triggered intra-firm leakage: non-participant facilities increase their total toxic releases when their sister facilities enroll in P2, but this effect disappears over time eventually resulting in a net decrease of toxic emissions within the parent firm. We find no evidence suggesting that the leakage is driven by a firm-wide decrease in cost of equity capital, and some evidence supporting that the time pattern of our results could be associated with self-regulation induced technological innovations. From a policy perspective, this paper calls for increased reliance on incentive-based/information-based pollution control regulations as compared to traditional top-down command-and-control type environmental regulations in controlling toxic pollutants.
Political Violence and Local Economic Outcomes: The Case of Nepal (with R. Chaurey) Working Paper
This paper exploits the district-level variation in violence intensity during the “People’s War” in Nepal that took place from 1996 to 2006, and the subsequent signing of the peace treaty, to evaluate the relationship between political violence and local economic variables such as default risk, informal interest rates, farm investments, and household consumption. We employ a difference-in-differences research design to show that after the signing of the peace treaty in 2006, the informal interest rates increased by about 12 percentage points in the districts that had experienced more violence during the Civil War as compared to the districts that experienced less violence. Our findings demonstrate that there were no corresponding statistically significant increases in the default rates to support the lender’s risk hypothesis. We also find that the increase in the informal interest rates are likely driven by the increase in farm investments and consumption of durables in previously violence-ridden districts. Together, these results provide new quasi-experimental evidence that the high interest rates charged in the informal credit sector of developing countries may not entirely be driven by high default risks, and hence high-risk premium charged by the professional moneylenders.
The Impact of Party Politics on Environmental Monitoring and Enforcement - Working Paper
I shed light on the relationship between a state governor’s political ideology and the intensity of environmental monitoring and enforcement activities within 50 U.S. states pertaining to three main environmental legislations, namely the Clean Air Act (CAA), the Clean Water Act (CWA) and the Resource Conservation and Recovery Act (RCRA). Using EPA's Enforcement & Compliance History Online (ECHO) data comprising the universe of all environmental monitoring and enforcement activities within the 50 U.S. states, and employing a regression discontinuity design, I find that polluting facilities’ likelihood of being inspected and sanctioned in any given year increases modestly under a Democratic governor despite no significant changes in their violating behavior. However, in the CAA case, further analysis reveals that the increased likelihood of inspections under a Democratic governor is primarily driven by increased frequency of partial compliance evaluations (partial inspections) only. Comprehensive compliance evaluations (full inspections) decrease significantly under Democratic governors as compared to their Republican counterparts.
How Lobbying, Political Connectedness, and Government Favoritism Affect Environmental Monitoring and Sanctions (with J. Yang) - Work in Progress
We examine the impact of a CEO’s political contributions, a company’s political connectedness, and its lobbying efforts on the stringency of environmental monitoring and sanctions it faces. Using the Toxics Release Inventory data maintained by the Environmental Protection Agency, and lobbying data available at (www.lobbyview.org) as well as campaign contributions from CEOs as a measure of a company’s political connectedness, we analyze whether outcomes such as the likelihood of (i) environmental inspections, (ii) informal enforcement actions (infraction notices, informal phone calls, warning letters, etc.), and (iii) formal enforcement actions including judicial court orders and administrative fees, are affected by a company’s political connectedness, conditional on its polluting behavior.
Do Polluting Firms Suffer Financially from Negative Environmental News Events? - Working Paper
This paper examines the immediate effects of the media coverage surrounding City of Flint’s State of Emergency declaration on firms’ stock market returns. Using a standard market model for event study, I find that firms experienced statistically significant negative abnormal returns (about 2%) during the 7 trading days following Flint’s emergency declaration. These results are robust to a wide range of placebo tests including time-shifted placebo tests. My analysis of regulatory response also indicates that the Crisis led to (i) an increase in the frequency of environmental inspections, and (ii) increase in the number of informal sanctions (warning letters, informal phone calls, infraction notices, etc.). I conclude that the total dollar value lost on companies’ outstanding shares as a result of the crisis was between $15 to $40 billion, which is far greater than the public utilities investment gap of $10 billion that caused the crisis in the first place.
Impact of Federally-Reportable Environmental Violations on Company Stock Returns (with N. Khanna) Work in Progress
This paper analyzes the impact of environmental violations on company stock returns. In particular, I examine the impact of federally-reportable violations of the Clean Air Act (CAA) and Clean Water Act (CWA) standards on the average-daily stock market returns of companies that are publicly traded in the US stock markets. When a facility belonging to a publicly traded company enters a federally-reportable violation, that information can disseminate as environmental “bad news” for the company and its shareholders, which in turn can cause the company’s share value to drop. Similarly, when violations are resolved prior to their deadlines, they act as environmental “good news,” which in turn can increase the company’s stock return. Using event-study analysis, I examine the validity of these ex-ante expectations regarding how different types of environmental news (good vs bad) can affect companies’ stock returns. This research is important because the existing literature has mostly focused on the impact of negative environmental news on firm’ stock prices (see Hamilton, 1995; Khanna et al, 1998, etc.). Only a few studies have attempted to examine the impact of positive environmental news on stock returns (see Wang, Delgado, Khanna, Bogan, 2016). More importantly, this project will be able to highlight the symmetry (or the lack of) between declining stock prices when firms enter violations (negative environmental news), and the increasing stock prices when they exit such violations (positive environmental news). If significant asymmetries are observed between the impact of arguably comparable negative versus positive environmental news, then it opens doors for future research on contributing factors that give rise to such asymmetries.
Who Wins and Who Loses from Major Nuclear Incidents?” (with A. Benson and J. Son) Work in Progress
Employing a single factor market model for event study, I am examining the impact of four major nuclear accidents on the stock market performance of 'nuclear reliant' companies in the U.S. The four events are namely (i) the Three Mile Island incident that took place in the United States, (ii) the Chernobyl disaster in present day Ukraine, (iii) Tokaimura nuclear accident in Japan, and the relatively more recent (iv) Fukushima nuclear disaster (also in Japan) that took place in 2011. Preliminary results suggest that all but one incident (Tokaimura) yielded a modest (3%), albeit statistically significant negative abnormal returns for nuclear reliant U.S. companies. Some of the companies that were hit the hardest were: Entergy Corp (11% negative abnormal returns) in the wake of the Fukushima disaster, Exelons Corp (7% negative abnormal returns), and other utility companies with nuclear as their primary mode of power generation. The impact of those events on other energy corporations (e.g. coal companies, natural gas pipeline operators, companies specializing in solar and wind power etc.) is currently being investigated.