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Journal of Business Research 62 (2009) 484 – 494

Environmental performance and plant closure ☆


George Kassinis ⁎, Nikos Vafeas
University of Cyprus, Cyprus
Received 1 August 2007; received in revised form 1 November 2007; accepted 1 January 2008

Abstract

This study uses a sample of plant closings as the testing stage to examine the financial consequences of variant environmental performance
records and stakeholder pressure levels. It compares 117 manufacturing facilities closing down between 1998 and 2000 to 351 facilities surviving
through this period, along four measures of environmental performance. It shows that in the ten years prior to closure, closing facilities reduce
their toxics emissions relatively more and incur somewhat stronger community and regulatory pressures than surviving ones. The results persist
through alternative versions of the model and suggest that the environmental performance of closing facilities is at least as good as that of
surviving ones. The mix of environmental practices of closing facilities differs from that of surviving ones with the former engaging in
significantly less recycling of waste than the latter. Closing facilities focus more on end-of-pipe measures while surviving ones engage in more
pro-active strategies, consistent with evidence in the literature of a positive relation between pro-active environmental practices and performance.
Stakeholder pressures, in some cases (e.g., in pollution intensive industries), may be associated with unrecoverable costs to facilities, including
closure, depending on the environmental management choices of the facilities.
© 2008 Elsevier Inc. All rights reserved.

Keywords: Environmental performance; Toxic emissions; Stakeholder pressures; Plant closings

1. Introduction Research (e.g., King and Lenox, 2002; Majumdar and Marcus,
2001) has shown that U.S. environmental regulations restrict
The impact of environmental choices on a firm's financial firms' environmental management choices. Thus, they force
performance is currently not fully understood. Simply put, no managers, who try to respond to stakeholder pressures (e.g.,
clear evidence exists as to whether pollution pays or polluters Kassinis and Vafeas, 2006), to more often use costly end-of-pipe
pay and what distinguishes firms that have lower emissions measures than pollution preventive ones, despite the performance
from others with higher ones. This article develops and tests and innovation benefits associated with the latter (King and
hypotheses that build on the idea that stakeholder pressures may Lenox, 2001, 2002). Economists debate the benefits and costs of
be related to the closure of polluting facilities operating in an environmental regulation (Greenstone, 2002) with some arguing
inflexible regulatory system—despite firm efforts to respond to that increasing compliance may reduce firm profits (e.g., Palmer,
such pressures by reducing their emissions. Oates, and Portney, 1995) and others that properly designed
environmental regulation may trigger innovation (e.g., Berman

We thank Jean McGuire (the Associate Editor for the JBR's Strategic
and Bui, 2001; Porter and van der Linde, 1995).
Management area) and two anonymous referees for providing numerous useful The results show, albeit somewhat weakly, that environ-
comments and suggestions. Sofia Larmou and Alexia Panayidou provided mental stakeholder pressures are a factor potentially related to
competent research assistance. The data collection for this project was partly plant closure. This conclusion is consistent with the possibility
funded by the University of Cyprus. that stakeholder pressures may have negative financial
⁎ Corresponding author. University of Cyprus, Department of Public and
Business Administration, 75 Kallipoleos Avenue, 1678 Nicosia, Cyprus. Tel.: +357 consequences and the unsettling notion that, in some cases,
22892479; fax: +357 22892460. pollution may lead to cost savings. Researchers may have to
E-mail address: kassinis@ucy.ac.cy (G. Kassinis). examine stakeholder pressures and regulatory flexibility in
0148-2963/$ - see front matter © 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2008.01.037
G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494 485

combination since firms must not only be expected to positively Schwab, 1990). On the contrary, some research suggests that
respond to stakeholder pressures but be given the flexibility, environmental regulations may benefit firms (Berman and Bui,
through a well-designed regulatory framework, to do so without 2001; Porter and van der Linde, 1995) or that well-designed
undue risk to their survival. environmental regulations stretch firms beyond current practices
The study has a number of advantages over prior work. It and grant them flexibility to meet the ambitious goals they set
employs “hard” environmental performance measures and ex- (Majumdar and Marcus, 2001).
ploits the temporal variation in toxic releases during the ten-year
period prior to plant closing to avoid endogeneity problems that 2.1.2. Environmental strategies and firm performance
often plague entirely cross-sectional approaches associating en- A strand of literature examines the effects of environmental
vironmental and financial performance. By focusing on indivi- strategies on competitiveness. Most studies document a positive
dual manufacturing facilities rather than on entire firms as the relationship between environmental and financial performance
units of analysis, it isolates a cleaner, more homogeneous setting or environmental practices and performance (Dowell, Hart, and
for measuring environmental and financial performance. Yeung, 2000; Klassen and McLaughlin 1996; Russo and Fouts
The article's next section reviews the literature and develops 1997). King and Lenox (2001), for example, find an association
the arguments for the research hypotheses. The section after that between lower pollution and higher financial valuation but also
discusses the data selection process and variable definitions; the that underlying firm characteristics may cause this association.
last two sections present and discuss results and conclusions. Other studies document negative stock market reactions to the
announcement of U.S. EPA's Toxics Release Inventory
2. Theoretical development (Hamilton, 1995; Khanna, Quimio, and Bojilova, 1998).
Research also focuses on the relationship between the im-
2.1. Environmental regulations, environmental strategies, and plementation of environmental practices and performance and
performance suggests that lean production is complementary to waste re-
duction (King and Lenox, 2001). Others argue that corporate
Firm responses to environmental regulations vary, with some environmental programs generate unrecoverable costs and divert
reducing their emissions more than others. Such reductions are resources from other productive investments (Walley and White-
due to stakeholder pressures (Kassinis and Vafeas, 2006) or head, 1994). Finally, researchers also report that only pollution
broader institutional factors. In turn, environmentally legitimate prevention leads to financial gain (King and Lenox, 2002;
firms may have better access to resources, face less scrutiny, and Klassen and Whybark, 1999). In sum, what emerges from existing
retain the support of important stakeholders (Bansal and research is that preventive measures are associated with a variety
Clelland, 2004; Meyer and Rowan, 1977; Suchman, 1995). of benefits for adopting firms while end of pipe solutions lead to
This study asks whether firms that reduce their emissions in unexpected costs. This said, researchers point out the complexity
response to societal pressures suffer negative consequences. characterizing the successful implementation of pollution pre-
According to Friedman (1970), going beyond what the law vention measures (Aragón-Correa and Sharma, 2003). Such
strictly requires constitutes an agency problem—a conflict implementation depends on specific processes (Eisenhardt and
between managers' and shareholders' interests. Following this Martin, 2000) and organizational capabilities (Angell, 2001;
logic, one would expect discretionary pollution reduction by Aragón-Correa and Sharma, 2003; Hart, 1995; Pil and Rothen-
firms to lead to lower financial performance (King and Lenox, berg, 2003). Without such capabilities, a firm, however willing,
2002). In the following paragraphs, the discussion of the may be unable to efficiently reduce its environmental impacts and
literature on environmental regulations, stakeholder pressures, may suffer adverse financial consequences.
firm environmental strategies and their performance implica-
tions leads to the development of a number of hypotheses. 2.1.3. Plant closure: the ultimate price to be paid for poor
performance
2.1.1. Environmental regulations and their consequences This study focuses on the manufacturing plant as the unit of
Researchers argue that pollution regulation is one of the federal analysis and uses a plant's decision to close down as a proxy for
government's most controversial marketplace interventions and financial failure. In theory, there are many possible explanations
costs manufacturing plants almost $30 billion a year (Greenstone, for plant closure. Industry considerations (stemming from regu-
2002). As Greenstone (2002) shows, for example, Clean Air Act lation, competition, and industry-wide performance) often
amendments slowed the growth of pollution intensive industries determine the fluctuations in the number of facilities in opera-
in “non-attainment” U.S. counties resulting in the loss of hundreds tion (Greenstone, 2002). Plants owned by larger parent com-
of thousands of jobs and tens of billions of dollars of capital stock panies may be eliminated for reasons that have little to do with
and output. Manufacturers contend that these expenditures place the plant itself (such as a broader strategic reorganization plan
them at a competitive disadvantage in the global economy. With by the parent firm). In a related vein, the overall profitability of
the exception of Greenstone (2002), however, empirical research the parent firm may also guide decisions to close down indi-
has failed to consistently document a negative association vidual manufacturing facilities. Finally, closure is likely to be
between environmental regulations and industrial activity related to plant-specific reasons. For example, management
(Becker and Henderson, 2000; Henderson, 1996; Jaffe, Peterson, may be more likely to close down a plant that is less tech-
Portney, and Stavins, 1995; Levinson, 1996; McConnell and nologically advanced or is older and dirtier.
486 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494

The present study empirically controls for industry-wide and holders of various incomes can pressure firms to reduce their
parent firm considerations and attempts to isolate the compo- environmental impacts in the area where they live. Grossman
nent of the closure likelihood that is related to the plant itself. and Krueger (1995) suggest that stakeholders pressure firms
Further, it proposes that a closing facility has performed as through the policy process, which controls resource flows to-
poorly, or worse, in comparison to a surviving (control) facility. wards firms (e.g., via taxes or subsidies). Furthermore, they find
Consistent with this view, Blackwell et al. (1990) present a relationship between per capita income and environmental
evidence that public firms announcing plant closures experience quality and show that for most indicators, economic growth
significant stock price declines. Furthermore, the study controls brings an initial phase of environmental quality deterioration
for the type of environmental management practices facilities followed by a subsequent phase of improvement (also see Holtz-
use to account for the different consequences of varying envi- Eakin and Selden, 1992; Selden and Song, 1992). Also, Kassinis
ronmental management measures, as outlined above. and Vafeas (2006) document a positive relationship between
The study focuses on plant closure as a form of financial community income and lower toxic emissions at the plant level
failure. While there are contrasting arguments about the relation and argue that higher incomes are associated with increased
between environmental performance and financial failure, the community power and the capacity to exert stronger pressures on
expectation here is that financial benefits accrue from more pro- polluters to reduce their emissions.
active environmental management measures; greater financial A higher per capita income likely enables a community to
costs accrue from more reactive ones. Thus, controlling for the exert stronger pressures on a polluting plant to reduce its emis-
former, it is expected that financial failure will be more likely sions. Ceteris paribus, such pressures may lead to plant closure
for plants adopting a more reactive approach. if the plant fails to meet the community's expectations regarding
Based on the above discussion, the study tests the following its environmental record. Thus,
basic hypothesis. H2a: The higher the community income the higher the
H1: Considering the costs of pollution control and the likelihood of plant closure in that geographic community.
complexities of adopting pollution preventive measures, the
likelihood that a manufacturing facility closes down relates 2.3.2. Community environmental preferences
positively to its environmental performance record. Community environmental groups have the ability to mo-
bilize public opinion against a firm's environmental record
2.2. Community and regulatory stakeholder pressures and firm (Henriques and Sadorsky, 1999). Thus, community environ-
performance mental preferences capture a dimension of stakeholder pressures
that can influence managerial decision making. This conceptua-
Firms partly shape their environmental practices in response lization of pressures reflects the expectation that the capacity of
to stakeholder pressures (Henriques and Sadorsky, 1999; these stakeholders to pressure firms will be greater in the areas
Kassinis and Vafeas, 2006) and, as competition increases, where industrial activities are located and where environmental
they can benefit from improved stakeholder relations (Hillman pollution is produced. These mobilized constituents influence
and Keim, 2001). Communities, the political and regulatory the public policy process and through it firm decisions. In turn,
environment (governments, legislatures, and regulators), cus- plants exposed to more intense pressures from surrounding
tomers, employees, and shareholders are examples of stake- communities are likely to have lower emissions.
holders who influence corporate decision making and firm Complementing the community income hypothesis, the study
performance (Berman et al., 1999; Berry and Rondinelli, 1998). considers membership in environmental organizations as an indi-
Here, the study focuses on community and regulatory cator of the revealed environmental preferences of a geographic
stakeholders as potential determinants of facility environmental community. According to collective action theory, politically-
policies and, ultimately, financial performance. active constituents exercise a disproportionately large influence on
the public policy process (Keim, 1985; Olson, 1965) and use it to
2.3. Communities pressure firms to improve their environmental performance. Such
pressures may force a facility to close down if it cannot meet
Community stakeholders include, among others, geographic community expectations regarding its environmental record. Thus,
communities at large and community groups organized around a H2b: The stronger the community environmental prefer-
political or social interest. The latter may include environmental ences the higher the likelihood of plant closure in that
groups, which “can mobilize public opinion in favor or against a geographic community.
corporation's environmental performance” (Henriques and
Sadorsky, 1999: 89)—especially when such performance influ- 2.4. Regulatory stakeholders
ences their welfare. Thus, they may pressure firms to improve
their environmental performance (e.g., Berry and Rondinelli, 2.4.1. Legislative stakeholders and governments
1998; Rugman and Verbeke, 1998). The regulatory environment (e.g., governments and legis-
latures) affects a firm's competitive position and performance as
2.3.1. Community income issues that create uncertainty and increase the transaction costs
The relationship between income and pollution is unresolved. for firms are formulated in a public policy process (Hillman and
Fundamentally, what is unclear is the extent to which stake- Hitt, 1999). In fact, a high degree of interdependence exists
G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494 487

between a firm's competitive environment and public policy as significant since, in the last twenty-five years, responsibility
regulators can alter the size and structure of markets, influence for monitoring and enforcement of environmental regulations
product demand and alter the cost structure a firm faces, through has been devolving from federal to state and local regulators
taxes and environmental protection legislation respectively (Levinson, 2001).
(Baron 1995; Hillman and Hitt, 1999). As a result of regulatory H3b: The larger the environment-related state budget
pressures, firms reevaluate their strategic approach towards the allocations the stronger the pressures exerted on a plant and
natural environment (Hart, 1995; Shrivastava, 1995). This the higher the likelihood of plant closure in that state.
discussion informs two hypotheses linking regulatory pressures
to plant closure. 3. Methods

2.4.2. Legislative stakeholders Comparing the competing views of whether pollution pays or
The study includes the hypothesis that the likelihood of plant polluters pay is an intuitively appealing exercise. In practice,
closure relates positively to the pro-environment position of the devising empirical tests to distinguish between them is quite
congressional delegation of the state where a plant is located. difficult. For one, a firm's environmental performance is an
The delegation's voting record on major environmental issues is elusive concept to pin down, often measured using rankings and
indicative of its pro- or anti-environment position and reflects, questionnaires. Also, lack of data forces most studies to adopt a
at least partly, the environmental preferences of that state's cross-sectional approach relating environmental to financial
electorate. Research documents the importance of legislators' performance. A cross-sectional approach does not allow the
electoral constituencies in determining their legislative actions separation of cause from effect and is vulnerable to potentially
while public choice models emphasize the electoral self-interest unobserved spurious effects driving both environmental and
of legislators and the significance of their constituencies in financial performance. Finally, studying large public firms, as
shaping their behavior (Keim and Zeithaml, 1986; Lord, 2000). most studies have done, can be problematic because such firms
Thus, legislators have a strong interest in responding to their usually encompass heterogeneous operations that may adopt
politically-active constituencies because their political survival different approaches towards the natural environment. Similarly,
depends on them (Baron, 1994; Baysinger, Keim, and Zeithaml the financial performance of each of these firms reflects the sum
1985; Keim, 1985). of all its heterogeneous operations. Aggregating environmental
Managers are then likely to interpret the legislators' envi- and financial performance at the firm level is likely to be mea-
ronmental voting record as a signal of the latter's willingness to sured with noise.
use their capacity to exert pressures on firms to improve their The present study's empirical design addresses these issues.
environmental performance. Thus, plants in areas represented The study focuses on manufacturing plant closings as an in-
by pro-environment legislators are likely to incur stronger pres- dication of economic failure. After controlling for macroeco-
sures to reduce their emissions than plants in areas represented nomic and firm-level effects, it assumes that plants closing down
by less environment friendly legislators. Such pressures may have performed at least as poorly in the recent past, or more
force the closure of a plant if its management cannot meet poorly, compared to surviving plants. Specifically, the study
stakeholders' expectations regarding the facility's environmen- compares several environmental performance indicators for a
tal record. sample of 117 plants that closed down between 1998 and 2000 to
H3a: The more pro-environment the voting record of a the respective indicators of 351 surviving plants matched on
Member of Congress the stronger the pressures exerted on the industry affiliation for the ten years leading to plant closure. The
plant and the higher the likelihood of plant closure in the area environmental performance indicators, mostly from U.S. EPA
he/she represents in Congress. data sources, are toxic releases, environmental accidents, and
environmental lawsuits. Last, the study attempts to explain the
2.4.3. Governments pattern of environmental performance across plants through a
The likelihood of plant closure is related to pressures exerted number of variables that capture community and regulatory
on the plant by governmental authorities in its locale. A stricter stakeholder pressures in the area where a plant is located.
regulatory environment likely exerts stronger pressures on To deal with the absence of sufficient controls for plant
plants to improve their environmental performance and such output – given that such privileged information is unavailable
pressures may force their closure if plant management cannot through commercial databases – and to increase the robustness
meet the regulators' expectations regarding a facility's environ- of the tests, the study includes a number of steps. Initially, given
mental record. The study uses information on environmental that ceteris paribus larger facilities are likely to produce more
budgets in the state where such industrial activities are located toxic waste, rather than focusing on toxics release levels the
to capture the state's regulatory stringency and its fiscal and study focuses on the annual percentage changes in toxic
institutional capacity. Larger state environmental budgets are releases for the ten years leading up to plant closing. Production,
related to more intense pressures facing a plant located there in fact, continues to increase for closing facilities up to three
(see also Kassinis and Vafeas, 2006). Carroll (1989) suggests years prior to closure. For these facilities, production starts
that budget or staff sizes could serve as measures of the power declining only in the last two years prior to closure. In addition,
associated with a stakeholder group and hence its ability to the study selected three control facilities for each closing one to
influence firm decisions. State environmental spending is reduce the noise in its benchmark and to increase the power of
488 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494

the tests to identify how differences in environmental practices Table 1


and stakeholder pressures differ between closing and surviving Distribution of 117 plant closings taking place between 1998 and 2000 across
the 20 2-digit manufacturing SIC codes
facilities. The study includes additional controls for a number of
factors. First, it controls for the level of economic activity in the Industry description Two-digit 1998 1999 2000 Total Frequency
SIC (%)
facility's industry given the expectation of a lower likelihood of
plant closing in the presence of greater manufacturing activity. Food 20 2 2 2 6 5.1
Tobacco 21 0 0 0 0 –
Second, it controls for whether the facility's parent firm un-
Textiles 22 1 0 0 1 0.9
derwent a major reorganization in the years prior to closure. Apparel 23 0 0 0 0 _
Third, it controls for variant environmental management prac- Lumber 24 1 0 0 1 0.9
tices across facilities, (i.e., toxic waste recycling, waste used for Furniture 25 0 1 2 3 2.6
energy recovery, and toxic material treatment) to account for the Paper 26 1 1 0 2 1.7
Printing 27 1 1 0 2 1.7
possibility that closing and surviving facilities employ diffe-
Chemicals 28 9 17 14 40 34.2
rent environmental management strategies. Lastly, it uses Petroleum 29 0 0 1 1 0.9
several complementary environmental performance indicators Plastics 30 2 2 5 9 7.7
(toxics releases, environmental law violations, and accidents) Leather 31 0 1 0 1 0.9
for both closing and surviving facilities. Given these controls, Stone/clay/glass 32 0 0 0 0 _
Primary metals 33 4 3 2 9 7. 9
the study offers some interesting evidence on the environmen-
Fabricated metals 34 4 5 4 13 11.1
tal performance of closing facilities vis-à-vis surviving ones. Machinery 35 1 4 2 7 6.0
Electrical equipment 36 4 5 6 15 12.8
3.1. Sample Transportation equipment 37 2 0 0 2 1.7
Measure/photo 38 1 1 0 2 1.7
Miscellaneous 39 2 1 0 3 2.6
To identify the sample of closing and control facilities, the
Total 35 44 38 117 100.0%
study initially considered the population of facilities disclosing
their toxic releases to the U.S. EPA. Since 1988, the EPA has
required all facilities to disclose their toxic releases by filing a
TRI report if they have 10 or more full-time equivalent
employees and manufacture or process more than 25,000 lb or pressure discussed herein emanates from the Chemical Manu-
otherwise use more than 10,000 lb of any listed chemical during facturer's Association and its adoption of “Responsible Care”
a calendar year (U.S. EPA, 1999). Among facilities disclosing principles. Other highly represented industries are electrical
their toxic releases there is a clear bias towards industries using equipment (SIC 36; n = 15), fabricated metals (SIC 34; n = 13),
(and releasing to the natural environment) more toxic materials and primary metals (SIC 33; n = 9). This finding is not sur-
such as the chemicals and primary metals industries. The initial prising given that these industries generally handle more toxic
sample of plant closing candidates are facilities that disclosed materials than other industries. Further, the study of plant
TRI levels for all years since 1988, and did not disclose again closings in these industries is more likely to be fruitful because
starting in 1998, 1999, or 2000. A total of 1030 firms passed this the environmental choices of facilities in these industries are
screening criterion that is intended to ensure that a sufficiently much more important to their survival—given they are pol-
long time series of TRI data would be available for the analysis. lution intensive and the target of both regulatory and overall
The authors then contacted the EPA's TRI Reporting Center and stakeholder scrutiny. The study did not identify any plant clos-
requested confirmation as to which of the 1030 facilities they ings meeting its data restrictions in the tobacco, apparel, and
pre-screened the EPA knew for a fact to be closed. The EPA stone/clay/glass industries (SICs 21, 23, and 32).
confirmed that 117 of these facilities had indeed shut down. The To assess the likelihood of plant closing, the authors con-
EPA determines which facilities close down primarily through structed a benchmark sample of control facilities that survived
the facilities' own letters to the EPA informing the agency of throughout the sample period. To this end, they identified all
plant closure and, infrequently, through stories in the news facilities in each two-digit SIC that reported an uninterrupted
media. Therefore, the authors are fairly certain that the series of TRI data between 1988 and 2000 (n = 7,453). Using a
experimental facilities have indeed closed down. These random number generator, for each of the 117 plant closing
facilities constitute the sample of plants closing down between facilities they then selected three control surviving facilities
1998 and 2000. operating in the same two-digit SIC as the closing facility.
Table 1 presents the industry and time distribution of these Three control facilities were selected, rather than one, to reduce
117 manufacturing facilities. In general, the plant closings are the noise in the study's benchmark and to increase the power of
fairly evenly distributed among the three sample years. Of the tests to identify how differences in environmental practices,
117 closings 35 occurred in 1998, 44 in 1999, and 38 in 2000. among other factors, distinguish between closing and surviv-
Comparing sample frequencies across industries, there is a ing facilities. Therefore, the control sample comprises 351
very high occurrence of plant closings meeting the study's data facilities. In sum, the dependent variable is a plant closing
restrictions in chemicals (SIC 28; n = 40 or 34.18% of the dummy that is set to one for the sample of 117 plants closing
whole). Given the large fraction of the sample coming from the down between 1998 and 2000 and zero for the 351 matched
chemicals industry, it is likely that a major source of stakeholder control plants.
G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494 489

The first measure of environmental performance is the to- sional delegation voted favorably on environmental issues. The
tal amount of toxic releases of a plant. This variable, measured voting record of each state's Congressional delegation (members
in pounds of toxic chemicals, constitutes the strongest piece of the U.S. House of Representatives and the U.S. Senate) on
of information on how the facility performs towards the environmental issues (ranging from biodiversity and global
environment. Given that larger facilities are likely to produce more warming to wetlands conservation and mining) comes from the
toxic waste, rather than focusing on toxics release levels the study scorecards of the League of Conservation Voters. The League
focuses on the annual percentage changes in toxic releases for the keeps track of what approximately 30 of the major U.S.
ten years leading up to plant closing. To address appropriateness of environmental organizations believe to be the most important
this raw TRI measure, the authors compare its correlation to two pieces of legislation and how senators and representatives vote on
alternative TRI measures based on weighting schemes: 1) they these issues. Following Kassinis and Vafeas (2002), the construct
estimate toxicity-weighted TRI levels (as in King and Lenox, 2000) captures the percentage of times members of Congress in a
for 5038 chemical plants in the TRI database for 1997; 2) they facility's home state voted for an environmental measure. (3) The
estimate cancer- and non-cancer weighted TRI levels using the ratio of state environmental spending to a state's total budget is
Tool for the Reduction and Assessment of Chemical Impacts obtained using data from the Council of State Governments. The
(TRACI) developed by the US EPA (Bare et al., 2003; Toffel and amount of relative environmental spending by a state government
Marshall, 2004). They find a high positive correlation between raw is expected to proxy for the amount of pressures exerted on a
TRI, used here, with toxicity-weighted TRI (r =0.60) and the four facility by the state to behave in an environmentally responsible
TRACI-weighted measures. Given the high correlation among fashion, and accounts for the fact that closing and surviving
these TRI measures, and the intensive computational requirements facilities may be located in different geographical areas. 4)
of estimating the weights for alternative 10 year periods for the Finally, the environmental preferences of the population in a
various plant groups, the study employs and reports raw TRI levels. facility's home state are proxied by the number of paying
Second, using data obtained from EPA's Docket database the members of major U.S. environmental and conservation groups
authors construct a variable measuring the number of cases or per 1000 state residents (Andrews, 1994).
administrative actions filed against a facility by the Justice Most importantly, the study controls for plant output by
Department (on behalf of the EPA) for violating an environ- accounting for the change in production for each plant over the
mental law since 1988. Finally, from the EPA's Accidental ten-year period prior to closure. Using each TRI reporting
Release Information Program (ARIP) database they collected facility's full report to the EPA, the authors tabulate and use data
information on the number of chemical accidents reported for on the quantities of all individual chemicals used as inputs in the
each facility. While data for lawsuits covered the entire sample production processes of each plant in each year. While absolute
period, data on accidents were only available from January 1988 amounts of materials used are not available, the data source
to December 1995. The expectation is that firms named as provides information on usage relative to the previous year—
defendants in EPA lawsuits (see Kassinis and Vafeas, 2002) and termed the production index or ratio (e.g., a production ratio with
firms reporting more environmental accidents are, on balance, a value of 1.1 for a chemical implies that the quantity used in year
worse environmental performers than other firms. t was 10% greater compared to year t − 1). Given that information
Finally, to account and control for the environmental manage- is provided on a per chemical basis, the authors estimate the
ment practices employed by each facility, the study uses data change in the overall volume of production for a plant in a year by
obtained from the TRI database's Waste Quantity Reports for observing the percentage change in the median chemical for that
each facility, to construct three measures of environmental ma- plant and that year. In any given year, the use of some chemicals
nagement practices: i) the fraction of toxic chemicals recycled; ii) for a plant increased compared to the previous year (the
the fraction of toxic chemicals combusted for energy recovery; production ratio was greater than one) while the use of others
and iii) the fraction of toxics otherwise treated by the plant. In each decreased (the ratio was below one). The authors rank all the
case, information on both on- and off-site recycling, energy chemicals for each plant in any given year by production ratio
recovery and treatment is available. The study presents results (i.e., by the change in usage compared to the previous year). They
from total amounts in each of the three categories. As it turns out, select the median chemical in terms of production ratio and
results are qualitatively similar when the further partitioned assume this was the median rate of change in the plant's overall
measures are used. production compared to the prior year. Starting in year −10
As mentioned above, the study uses the following proxies to relative to plant closure, they are able to construct an index
capture the effect of community and regulatory stakeholders on capturing the percentage change in production from year −10 to
the likelihood of plant closure: (1) Per capita income, which any subsequent year.
proxies for community pressures on the facility and is measured at To account for additional potentially confounding factors
the county level. Data come from the U.S. Census Bureau's USA leading to plant closure the study also controls for a number of
Counties 1998 database. Given that the environment is a normal other variables in the model. First, it controls for whether a
good, wealthier consumers demand a better environment (Gross- facility's parent company is a publicly traded firm. The authors
man and Krueger, 1995), are more likely to exert pressures on a identify parent firms in the EPA's TRI database background
facility to improve its environmental performance, and if the files and check whether these firms are publicly traded by
facility fails to do so, their pressures may contribute to its closure. searching for them in the Compustat database (Global Vantage
(2) Voting record—the fraction of times each state's congres- if the facility belonged to a foreign parent). A public firm
490 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494

dummy is set to one if a firm is publicly traded and zero closure. The results (not tabulated) reveal no relation between
otherwise. This treatment partly accounts for the possibility that parent firm profitability and closure. One likely explanation for
the likelihood of plant closure is related to a facility's ownership this non-result is, again, the limited importance of any one plant
structure. for public firms that are, on average, quite large.
Second, a parent reorganization dummy is set to one if the Finally, a manufacturing activity variable captures the
parent firm underwent a major reorganization in the years prior percentage change in the number of establishments in a state
to closure and zero otherwise. This information is collected for a given two-digit SIC code in the period 1992 to 1997. It is
from the Compustat research file that includes information on intended to proxy for the level of economic activity in the
mergers and acquisitions, bankruptcy filings, liquidations. This facility's industry and locale. These figures were collected for
dummy variable is an imperfect measure of reorganization each state and industry from the Economic Census of 1992 and
given that a small reorganization plan affecting the sample 1997, as the 2002 figures were not available when data
facilities may have taken place without being coded in Com- collection was completed. A lower likelihood of plant closing is
pustat. This bias is likely to work against the study's likely in the presence of greater manufacturing activity.
expectations because it will likely add noise to the results.
Because of data constraints, the reorganization variable is only 4. Results
computed for the public firms in the sample. It is expected that
the likelihood of plant closure is greater if the parent firm Cross-group comparisons in Table 2 provide some initial
reorganizes its operations. insights on the differences between closing and control facilities
Third, the study controls for the parent firm's size, appro- that are in line with the first hypothesis. The study initially finds
ximated here with sales revenue. This information is collected weak evidence of a greater absolute decrease in toxics releases
from the Compustat database and is measured in the fiscal year for closing compared to control facilities between years − 10
prior to plant closure. Larger firms are more likely to close (or and − 3 (t = − 1.95). Such difference becomes much more
open) a plant relative to smaller firms because each plant is less pronounced in the last three years prior to closure, reflecting the
significant to a larger firm-owner in relative terms; and thus the decrease in output by closing facilities.
threshold for closure will be lower. In addition, for the sub-sample Univariate tests also show weak evidence of a lower rate of
of publicly traded firms, the authors extracted data on net income environmental accidents among closing facilities compared to
from Compustat to explore the role of parent firm profitability, as control facilities (one closing and 13 control facilities reported
an added control variable, in explaining the likelihood of plant accidents; χ2 for difference in proportions is 4.64 and p b 0.05).

Table 2
Comparison of 117 manufacturing facilities closing down between 1998 and 2000 to 351 SIC-matched control facilities
Variable Closing Control Difference t-statistics (χ2 statistics) Wilcoxon-z
# of facilities 117 351

Environmental performance variables


Median reduction in toxic releases from − 10 to − 3 − 48.89% − 44.22% − 4.67% − 1.95⁎ − 1.67⁎
Median reduction in toxic releases from − 3 to − 1 − 50.00% − 6.58% − 43.42% − 2.66⁎⁎⁎ − 5.58⁎⁎⁎
Proportion of facilities having an environmental accident pct. 0.9% 3.7% − 2.8% (4.64)⁎⁎
Proportion of facilities being the target of an EPA lawsuit pct. 6.8% 12.5% − 5.7% (3.78)⁎

Stakeholder variables
Per capita income (in thousand of $) Mean 23.403 21.261 2.143 3.72⁎⁎⁎ 3.32⁎⁎⁎
Voting record (pct. pro-environmental votes) Mean 51.2% 46.0% 5.2% 2.13⁎⁎ 1.89⁎
State environmental budget/total budget Mean 0.9% 0.8% 0.1% 1.18 0.92
Environmental preferences Mean 17.460 16.620 0.840 1.11 1.35

Environmental management programs


Toxic waste recycled pct. 19.0% 29.4% − 10.4% − 2.70⁎⁎⁎ − 2.74⁎⁎⁎
Toxic waste used in energy recovery pct. 9.5% 9.6% − 0.01 − 0.30 − 1.10
Toxic waste treated on or off-site pct. 21.5% 20.4% 1.1% 0.07 1.09

Control variables
%Δ in production from − 10 to − 3 pct. +45.5% +66.8% − 21.3% − 1.08 − 6.14⁎⁎⁎
%Δ in production from − 3 to − 1 pct. − 34.5% +13.1% − 47.6% − 6.89⁎⁎⁎ − 12.26⁎⁎⁎
Facility belongs to publicly traded firm pct. 65.8% 57.8% 7.0% (2.42)
Parent firm reorganized (merger, bankruptcy, etc) a pct. 20.8% 6.4% 14.4% (8.61)⁎⁎⁎
%Δ in # of mfg. facilities in home state in last 5 years Mean 1.7% 3.5% − 1.8% − 1.78⁎ − 1.50
Sales revenues for parent firm (in $millions) Mean 10,840 9114 1726 0.72 1.19
⁎, ⁎⁎, ⁎⁎⁎Significant at the 0.10, 0.05, and 0.01 level respectively.
a
For facilities belonging to publicly traded parents only.
G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494 491

Similarly, eight closing facilities (6.8%) were indicted in an envi- made up to three years prior to actual closure. Therefore, it is
ronmental lawsuit, while 44 control facilities (12.5%) were ana- reasonable to assume that changes in operations that are observed
logously indicted. The χ2 for the difference in proportions is 3.78 in earlier periods (e.g., declining toxic emissions) are not the result
(p b 0.10). Both results point to a more environmentally respon- but may well be an antecedent of plant closure.
sible behavior by closing facilities compared to surviving ones. Deflating toxics reduction from year −10 to year − 3 with the
Among the stakeholder variables, per capita income is sig- corresponding change in production suggests a somewhat
nificantly higher in the counties where closing facilities are located higher proportionate decrease in toxics by control facilities
(hypothesis 2a), suggesting these facilities may face greater compared to closing ones. This is consistent with closing
pressures by their area residents. Similarly, the congressional facilities slightly lagging in environmental performance com-
delegation is significantly more pro-environment in states where pared to control facilities, and making a final attempt to meet
closing facilities are located (hypothesis 3a). The environmental stakeholder demands immediately prior to closure; i.e., in years
spending and environmental preferences variables are not − 3 to − 1. Ultimately, this is a question that is best addressed by
statistically different between closing and control facilities. the multivariate empirical tests presented in Table 4.
Notably, surviving facilities are a lot more likely to recycle their As expected, a facility is significantly more likely to close if
toxic waste, in line with the view that such facilities are more active its parent company undergoes major restructuring. Also, the rate
in mitigating their toxic releases (t= −2.70). In a more refined test of growth in the number of manufacturing establishments in a
(results not tabulated), the authors find that such a difference stems facility's industry and home state, proxying for the manufactur-
from sharp differences in the amount of recycling performed on- ing activity in the facility's home state, is negatively related to
site—possibly pointing to the surviving facilities' in-house the likelihood of plant closing, albeit weakly. The proportion of
capabilities to do so. Results on off-site recycling are indistinguish- facilities owned by publicly traded firms and the relative
able between the two groups. Also, the two groups do not differ in amount of environmental spending in a facility's home state are
terms of the relative amount of toxic waste used towards energy statistically indistinguishable across the two groups.
recovery or the amount of toxic waste treated, either on- or off-site. Table 3 presents pairwise correlations between the variables used
The results are telling on differences in production across the in the logistic regressions. The plant closure dummy is positively
two groups. The average volume of production increases in each correlated with per capita income, proxying for stakeholder
of the first seven years under study for both closing and control pressures, and negatively correlated with the reduction in toxic
facilities (for a cumulative change of +45.5% for closing and releases and material recycling. Also, as expected, it is positively
+66.8% for control facilities). While production continues to correlated with parent firm reorganization and negatively correlated
increase at a similar rate for control facilities, it exhibits a sharp with pre-closure changes in production. The level of toxic releases
decline in closing ones, down by 34.5% in the year prior to plant prior to closure is negatively related to measures of stakeholder
closure. This signifies that the decision to close down a plant is pressures. Environmental lawsuits are positively correlated with

Table 3
Pearson correlation coefficients for the variables used in the logit regressions
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17)
1. Plant closing dummy 1.00
2.%Δ in TRI (− 10,− 1) −0.16 1.00
3. Log (toxic releases 0.05 −0.51 1.00
in − 10)
4. EPA-lawsuit target −0.08 0.02 0.04 1.00
dummy
5. Environmental accidents −0.07 − 0.06 0.19 0.18 1.00
6. Toxic material recycling −0.12 0.04 −0.12 0.03 − 0.03 1.00
7. Toxics in energy recovery 0.01 − 0.06 0.03 0.07 0.02 −0.19 1.00
8. Toxic material treated −0.01 − 0.03 0.05 0.03 0.08 −0.33 −0.14 1.00
9. Per capita income 0.17 0.10 − 0.01 0.02 0.01 −0.12 0.14 0.06 1.00
10. Voting record 0.09 0.01 −0.12 − 0.01 − 0.04 0.01 0.03 − 0.01 0.40 1.00
11. State env. budget 0.05 − 0.06 − 0.03 − 0.05 − 0.04 0.02 0.01 − 0.05 0.02 0.08 1.00
12. Environmental 0.04 − 0.04 −0.11 − 0.04 − 0.05 −0.01 0.04 0.05 0.39 0.78 0.01 1.00
preferences
13.%Δ in production −0.14 0.02 − 0.01 − 0.03 0.08 0.03 − 0.02 − 0.01 − 0.06 − 0.03 0.01 −0.03 1.00
(− 10,− 1)
14. Publicly traded parent 0.07 − 0.01 0.11 − 0.04 0.07 0.10 0.08 0.01 − 0.01 − 0.08 − 0.06 −0.08 0.01 1.00
15. Parent reorganization a 0.21 − 0.07 0.07 − 0.04 0.05 −0.03 − 0.05 0.08 0.03 0.07 0.18 0.07 − 0.08 . 1.00
16.%Δ in mfg. −0.08 0.08 0.04 − 0.07 0.01 −0.02 − 0.07 − 0.03 −0.18 −0.27 − 0.01 −0.18 0.09 −0.02 −0.12 1.00
establishments
17. Log (sales revenues) a 0.07 0.08 0.06 0.13 0.11 −0.03 0.11 0.12 − 0.05 − 0.01 − 0.04 −0.01 −0.16 . −0.17 0.01 1.00
The plant closing dummy is set to one for plants closing down between 1998 and 2000 and zero for matched control plants. Coefficients in bold are statistically
significant at p b 0.05.
a
For facilities belonging to publicly traded parents only.
492 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494

environmental accidents. Thus, lawsuits and accidents are partly effects are introduced (i.e., treating each closing facility and
overlapping in measuring the environmental performance of control triad as a different group) the results on the main variable
sample facilities. Also, there is a high positive correlation among of interest were similar to the results reported here.
the stakeholder variables, suggesting they partly measure the Four models are estimated: models one and three employ
same concept of external pressures on the facility. Interestingly, the full sample of facilities closing down and the correspond-
the rate of increase in manufacturing establishments is negatively ing control facilities. Models two and four exclude facilities owned
related to the strength of stakeholder pressures in an area. These by private parent companies because the model requires that data
results suggest that facilities partly choose their location so as to on parent company reorganization be included in the model, given
limit constraints on their environmental performance. that reorganization data are only available for public firms. (To
Table 4 provides more direct evidence on the relation bet- further probe into the potentially confounding effect of parent firm
ween various environmental performance measures and the reorganization the authors re-estimated the basic logistic regres-
likelihood of plant closing. Given the relatively small number of sion models after excluding all plants whose parent firms had
control facilities per closing facility, the study does not use panel undergone any restructuring. The results, which are not tabulated,
data analysis but rather a simple maximum likelihood specifica- are interpreted in the same spirit as results reported here.)
tion on the logit for the models reported here. When plant fixed Models three and four additionally consider each of the four
stakeholder measures described earlier. In the models in Table 4
Table 4 the percentage change in TRI is winsorized at the 95% level to
Logit regressions of the likelihood of plant closure using a control sample of
randomly selected plants
tone down the effect of extreme percentage changes in TRI.
Taking each model as a whole, the − 2log-likelihood ratio is
(1) (2) a (3) (4) a
always significant at p b 0.01 suggesting each model is jointly
Intercept 0.984 1.159 − 0.639 − 0.359 significant in explaining the likelihood of plant closing.
(2.51) (0.85)(0.48) (0.05)
Given that the rate of TRI decrease is expected to accelerate
%Δ in TRI (−10,−3) − 0.128⁎⁎ − 0.203⁎⁎
− 0.124⁎⁎ − 0.214⁎⁎
(5.95) (4.60)(5.52) (4.69) as the year of closure gets closer, the authors break the ten-year
%Δ in TRI (−3,− 1) − 0.564⁎⁎⁎ − 0.759⁎⁎⁎
− 0.554⁎⁎⁎ − 0.758⁎⁎ period preceding closure into two sub-periods: TRI changes
(8.90) (6.11)(8.49) (5.74) from year − 10 to − 3 and TRI changes from − 3 to − 1. This
Log(toxic releases in −10) − 0.076 − 0.165⁎⁎
− 0.067 − 0.155⁎ breakdown provides an additional control for the impact of the
(1.90) (4.17)(1.41) (3.55)
decrease in production on the results. Initially the likelihood of
EPA-lawsuit target dummy − 0.481 − 0.374
− 0.510 − 0.319
(1.17) (0.29)(1.29) (0.21) plant closing is negatively related to the percentage change in
Environmental accidents − 1.330 − 1.56− 1.42 − 1.749 TRI in the two pre-closure sub-periods. That is, closing facilities
dummy (1.44) (1.48)(1.55) (1.61) exhibit greater reductions in toxic releases than control
Toxic material recycling − 0.836⁎⁎ − 0.718⁎
− 0.532 − 0.413 facilities. The change from − 10 to − 3 is significant in all four
(5.07) (1.02)(3.57) (0.58)
models at the 0.05 level. The decrease from − 3 to − 1 is
Toxic materials used in − 0.367 − 0.073
− 0.477 − 0.183
energy recovery (0.45) (0.01)(0.72) (0.05) significant at the 0.01 level in three out of the four models, and
Toxic materials treated − 0.186 − 0.279
− 0.197 − 0.406 at the 0.05 level in the fourth. These findings are consistent with
on- or off-site (0.23) (0.20)(0.25) (0.42) hypothesis 1 and the notion that given the costs of pollution
Per capita income _ _ 0.001⁎⁎ − 0.001 control and the complexities of adopting pollution preventive
(5.56) (0.52)
measures reduced environmental emissions are likely to be
Voting record _ _ 1.380 0.643
(2.49) (0.17) followed by plant closing, a form of economic failure.
State env. budget/total _ _ − 2.693 − 14.643 Further, it appears that closing facilities emit somewhat fewer
budget (0.02) (0.18) toxics than controls ten years prior to closure. (The variable
Environmental preferences _ _ 0.035 0.015 coefficient is negative in all four models and significant at p b 0.10
(1.62) (0.10)
or better in models two and four) The separate environmental
%Δ in production − 0.965⁎⁎⁎ − 1.964⁎⁎⁎ − 0.917⁎⁎⁎ − 1.884⁎⁎⁎
(−10 to − 1) (24.73) (33.30) (22.57) (30.84) lawsuit and environmental accident variables in models one and
Publicly traded parent 0.539⁎⁎ _ 0.566⁎⁎ _ three are negative but statistically insignificant. Combining the
dummy (4.13) (4.37) two variables, in a model not reported here, continues to produce a
Parent reorganization _ 0.861 _ 0.976 negative but statistically insignificant coefficient.
dummy (2.20) (2.56)
Notably, when the full sample is used in models one and
Parent firm sales revenue _ 0.267⁎⁎ _ 0.296⁎⁎
(logged) (5.32) (6.17) three, closing facilities appear to recycle substantially less than
%Δ in mfg. − 0.015 0.011 − 0.005 0.021 control facilities. Thus, it appears that control facilities
Establishments (1.12) (0.31) (0.16) (0.90) compensate for the more modest overall reduction in toxic
Sample size 449 243 446 242 releases with the use of a more pro-active and ultimately more
− 2Log-likelihood 418.0⁎⁎⁎ 188.8⁎⁎⁎ 407.5⁎⁎⁎ 185.2⁎⁎⁎
cost-effective mix of environmental management practices. In
The dependent variable is the plant closing dummy which is set to one for plants the full sample, stakeholder pressures proxied by per capita
closing down between 1998 and 2000 and zero for matched control plants. Wald income and congressional voting record appear to increase the
χ2 statistics are in parentheses.
⁎, ⁎⁎, ⁎⁎⁎Significant at the 0.10, 0.05, and 0.01 level respectively. likelihood of plant closure, in line with such pressures driving
a
Models 2 and 4 are estimated using the sub-sample of facilities that were away the source of such pollution. Other stakeholder pressure
owned by a publicly traded parent company. proxies are not statistically significant.
G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494 493

Also, as expected, closing facilities experience a sharp reduc- mance and closure should be interpreted bearing this caveat in
tion in output in the years leading to plant closure. The production mind.
index is negative and highly significant in all four models in Importantly, the study also finds evidence that closing
Table 4. Among the remaining control variables, publicly traded facilities were recycling a lower fraction of their waste materials
firms are more likely to close down their facilities than other parent compared to surviving facilities. This finding deserves further
firms (models one and three). Parent firms that undergo a major investigation possibly in connection with an analysis of the type
reorganization are not more likely to shut down a facility than of environmental management practices employed by a facility.
control firms. Among publicly traded owners, larger firms, proxied Such future work may be informed by research that points out
by logged sales revenues, are more likely to close down a plant, that financial performance benefits do not accrue indiscrimi-
perhaps because a plant's relative importance to the firm as a whole nately to firms engaging in environmental management but
decreases as parent firm size increases (models two and four). accrue only to those firms that use waste prevention practices
Finally, the rate of change in manufacturing establishments cannot (see, for example, King and Lenox, 2002; Klassen and Whybark,
explain the likelihood of plant closing. In sum, the results in 1999). At the same time, one should not underestimate the
Table 4 suggest that facilities closing down exhibit better complexities and challenges that characterize the successful
environmental performance than control facilities, contrasting implementation of pollution prevention measures (Aragón-
the unconditional argument that sound environmental performance Correa and Sharma, 2003). Such implementation depends on
leads to greater financial success. Most importantly, they suggest specific processes (Eisenhardt and Martin, 2000) and organiza-
that the mix of practices used by firms to manage their tional capabilities (Angell, 2001; Aragón-Correa and Sharma,
environmental impact determines whether financial performance 2003; Hart, 1995; Pil and Rothenberg, 2003). In the absence of
gains accompany improvements in environmental performance. such capabilities, a firm or a facility, although willing, may be
The models in Table 4 employ a control sample selected using a unable to efficiently reduce its environmental impacts and, as a
random number generator. To further address the possibility that size result, suffer adverse financial consequences—including closure.
differences across facilities account for the results, the models are re- Finally, as Joshi et al. (2001) suggest, plants may be forced to
estimated by matching each closing facility to a control facility close down for underestimating pollution reduction costs, a
among the pool of 351 controls used in Table 4 that belonged to the sizeable portion of which are hidden (e.g., because of an
same industry and had the nearest TRI levels in year −10. Implicit in inadequate cost accounting system).
this sensitivity check is the assumption that the size of facility The findings point, in part, to the importance of a flexible
operations is partly correlated with the level of toxic emissions, as environmental regulatory regime. Previous studies highlight the
that is measured at a point in time that is far removed from the plant fact that “well-designed regulations” have positive productivity
closing period. The results using this alternative control sample (not impacts, “…are flexible and grant firms latitude on how to meet
tabulated) are generally in line with earlier results, pointing to a goals” while still setting “…ambitious goals that stretch [firms]
better environmental record by closing facilities—a greater decrease beyond current practices” (Majumdar and Marcus, 2001: 170).
in TRI levels in the ten years prior to closure. Less flexible regulations may inhibit productivity by restricting
firm choices with respect to the means they can employ to comply
5. Conclusions with their requirements. In the case of the U.S., the existing
environmental regulatory regime is less “conciliatory” compared
This study shows that responding to stakeholder pressures and to that of other countries and may thus restrict firm environmental
reducing toxic emissions may have adverse consequences on a management choices—making managers less likely to explore
facility's likelihood of survival. At a minimum, it suggests that the benefits of pollution prevention and more likely to miss
facilities that seem to be more environmentally responsible do not opportunities for profitable pollution prevention (King and
perform better financially and may even perform worse than Lenox, 2002: 297). Thus, managers may be doing their best to
facilities that are less environmentally responsible. Taken at face reduce a plant's environmental emissions but may be going about
value, the findings suggest that controlling for a variety of parent it using methods or practices that have a negative impact on their
firm and macroeconomic factors, manufacturing facilities were facility's financial success or even survival.
more likely to close down when they reduced their toxic emissions Another set of issues that deserves attention concerns
more than a control group of survivors. Thus, the results suggest findings that stakeholder pressures closing facilities face appear
that at the margin, environmental costs contribute to a plant's to be more intense than those for surviving ones. Almost 35% of
economic failure. closing facilities in the sample belonged to the chemical
Although the study made a serious effort to control for other industry, the most polluting industrial sector in the U.S.
factors related to the likelihood of closure, such as economy-wide (Hoffman, 1999; Kassinis and Vafeas, 2006). Chemicals has
conditions, industry affiliation, parent firm reorganization, profit- consistently been the one industry at the center of the
ability, size, and plant-level production data, there remains a set of environmental debate – being the target of most early as well
plant-level factors for which data are not publicly available and as recent EPA regulations – and overall public scrutiny
which would have further enriched the analysis. Plant technology, (Hoffman, 1999). At least partly as a result of such pressures
productivity, and, most notably, plant age are also likely to be and scrutiny, this industry spends almost 10% of its capital
correlated with the decision to close down a facility. Therefore, the expenditures on environmental compliance compared to an
results on the documented relations between environmental perfor- average of less than 2% for all other industries (Hoffman, 1999).
494 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494

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