Fiscal monitoring policy and corporate carbon emissions in U.S firms

Abstract

This paper examines the impact of U.S. state-level adoption of fiscal monitoring policies (FMP) on corporate environmental performance (measured by firm-level greenhouse gas (GHG) emissions). Using a sample of firms that constitute the S&P 500 index from 2002 to 2023, the regression analysis reveals a positive and significant influence of the adoption of the FMP on corporate GHG emissions, with the adoption of the FMP resulting in a 16.18 % increase in corporate GHG emissions. This suggests that tight monitoring leads local governments to focus on the short-term economic growth at the cost of environmental performance. The main finding is robust to alternative estimators, alternative measures of corporate GHG emissions, and to several endogeneity treatments. Additional analyses demonstrate that corporate diversification, cultural tightness-looseness, right-to-work laws, and the inevitable disclosure doctrine negatively moderate the relationship between adoption of FMP and corporate GHG emissions. These findings could be useful for the decision-making of firm managers, investors, and policymakers, when dealing with climate, environment, and corporate issues.

Keywords: Fiscal Monitoring, Local Governments,Environmental Performance, Short-Termism, Managerial Myopia, Governance