The impact of the Serious Accidents Punishment Act on corporate ESG: Evidence from Korea

This study examines the impact of the Serious Accidents Punishment Act (SAPA) on corporate Environmental, Social, and Governance (ESG) in South Korea. The introduction of SAPA has created new regulatory uncertainties, compelling firms to implement costly measures to prevent serious accidents. Consequently, this increased short-term financial burden may reduce investment in long-term-oriented ESG initiatives. Using a difference-in-differences approach, we find that firms that are highly affected by SAPA have experienced a notable decrease in ESG scores, particularly environmental and social scores. However, we find no evidence that serious accident rates decreased following SAPA’s introduction. Overall, our findings suggest that regulatory policies such as SAPA that incur substantial immediate costs may limit long-term corporate investment. This study contributes to the understanding of the relationship between regulatory compliance and corporate long-term investment.