Environmental externalities of corporate culture: Evidence from firm pollution

Abstract

This paper examines the relationship between corporate culture and firms’ environmental policies. We find that a strong corporate culture is associated with lower toxic emission levels and reduced pollution intensity. These reductions are genuine and not the result of “greenwashing,” as these firms mitigate harmful toxic releases without selectively targeting specific environmental regulations. The primary cultural values associated with the reduction in toxic emissions include teamwork, innovation, respect, and integrity. To alleviate potential endogeneity concerns, we exploit a quasi-natural experiment based on the forced departures of CEOs due to the sudden public exposure of legal violations or concerns. We also employ a propensity score matching approach and use alternative measures of firms’ environmental externalities. Furthermore, we find that diversity and research and development (R&D) expenses are among the potential channels through which this effect occurs. Importantly, the reduction in firms’ toxic releases does not come at the expense of production. Finally, the negative relationship between corporate culture and firm pollution is concentrated in plants located outside the headquarters’ state and in counties with nonattainment status.