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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
The impact of environmental choices on a firm's financial
performance is currently not fully understood. Simply put, no
clear evidence exists as to whether pollution pays or polluters
pay and what distinguishes firms that have lower emissions
from others with higher ones. This article develops and tests
hypotheses that build on the idea that stakeholder pressures may
be related to the closure of polluting facilities operating in an
inflexible regulatory system—despite firm efforts to respond to
such pressures by reducing their emissions.
☆
We thank Jean McGuire (the Associate Editor for the JBR's Strategic
Management area) and two anonymous referees for providing numerous useful
comments and suggestions. Sofia Larmou and Alexia Panayidou provided
competent research assistance. The data collection for this project was partly
funded by the University of Cyprus.
⁎ Corresponding author. University of Cyprus, Department of Public and
Business Administration, 75 Kallipoleos Avenue, 1678 Nicosia, Cyprus. Tel.: +357
22892479; fax: +357 22892460.
E-mail address: kassinis@ucy.ac.cy (G. Kassinis).
0148-2963/$ - see front matter © 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2008.01.037
Research (e.g., King and Lenox, 2002; Majumdar and Marcus,
2001) has shown that U.S. environmental regulations restrict
firms' environmental management choices. Thus, they force
managers, who try to respond to stakeholder pressures (e.g.,
Kassinis and Vafeas, 2006), to more often use costly end-of-pipe
measures than pollution preventive ones, despite the performance
and innovation benefits associated with the latter (King and
Lenox, 2001, 2002). Economists debate the benefits and costs of
environmental regulation (Greenstone, 2002) with some arguing
that increasing compliance may reduce firm profits (e.g., Palmer,
Oates, and Portney, 1995) and others that properly designed
environmental regulation may trigger innovation (e.g., Berman
and Bui, 2001; Porter and van der Linde, 1995).
The results show, albeit somewhat weakly, that environ-
mental stakeholder pressures are a factor potentially related to
plant closure. This conclusion is consistent with the possibility
that stakeholder pressures may have negative financial
consequences and the unsettling notion that, in some cases,
pollution may lead to cost savings. Researchers may have to
examine stakeholder pressures and regulatory flexibility in
 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494
combination since firms must not only be expected to positively
respond to stakeholder pressures but be given the flexibility,
through a well-designed regulatory framework, to do so without
undue risk to their survival.
The study has a number of advantages over prior work. It
employs “hard” environmental performance measures and ex-
ploits the temporal variation in toxic releases during the ten-year
period prior to plant closing to avoid endogeneity problems that
often plague entirely cross-sectional approaches associating en-
vironmental and financial performance. By focusing on indivi-
dual manufacturing facilities rather than on entire firms as the
units of analysis, it isolates a cleaner, more homogeneous setting
for measuring environmental and financial performance.
The article's next section reviews the literature and develops
the arguments for the research hypotheses. The section after that
discusses the data selection process and variable definitions; the
last two sections present and discuss results and conclusions.
2. Theoretical development
2.1. Environmental regulations, environmental strategies, and
performance
Firm responses to environmental regulations vary, with some
reducing their emissions more than others. Such reductions are
due to stakeholder pressures (Kassinis and Vafeas, 2006) or
broader institutional factors. In turn, environmentally legitimate
firms may have better access to resources, face less scrutiny, and
retain the support of important stakeholders (Bansal and
Clelland, 2004; Meyer and Rowan, 1977; Suchman, 1995).
This study asks whether firms that reduce their emissions in
response to societal pressures suffer negative consequences.
According to Friedman (1970), going beyond what the law
strictly requires constitutes an agency problem—a conflict
between managers' and shareholders' interests. Following this
logic, one would expect discretionary pollution reduction by
firms to lead to lower financial performance (King and Lenox,
2002). In the following paragraphs, the discussion of the
literature on environmental regulations, stakeholder pressures,
firm environmental strategies and their performance implica-
tions leads to the development of a number of hypotheses.
2.1.1. Environmental regulations and their consequences
Researchers argue that pollution regulation is one of the federal
government's most controversial marketplace interventions and
costs manufacturing plants almost $30 billion a year (Greenstone,
2002). As Greenstone (2002) shows, for example, Clean Air Act
amendments slowed the growth of pollution intensive industries
in “non-attainment” U.S. counties resulting in the loss of hundreds
of thousands of jobs and tens of billions of dollars of capital stock
and output. Manufacturers contend that these expenditures place
them at a competitive disadvantage in the global economy. With
the exception of Greenstone (2002), however, empirical research
has failed to consistently document a negative association
between environmental regulations and industrial activity
(Becker and Henderson, 2000; Henderson, 1996; Jaffe, Peterson,
Portney, and Stavins, 1995; Levinson, 1996; McConnell and
485
Schwab, 1990). On the contrary, some research suggests that
environmental regulations may benefit firms (Berman and Bui,
2001; Porter and van der Linde, 1995) or that well-designed
environmental regulations stretch firms beyond current practices
and grant them flexibility to meet the ambitious goals they set
(Majumdar and Marcus, 2001).
2.1.2. Environmental strategies and firm performance
A strand of literature examines the effects of environmental
strategies on competitiveness. Most studies document a positive
relationship between environmental and financial performance
or environmental practices and performance (Dowell, Hart, and
Yeung, 2000; Klassen and McLaughlin 1996; Russo and Fouts
1997). King and Lenox (2001), for example, find an association
between lower pollution and higher financial valuation but also
that underlying firm characteristics may cause this association.
Other studies document negative stock market reactions to the
announcement of U.S. EPA's Toxics Release Inventory
(Hamilton, 1995; Khanna, Quimio, and Bojilova, 1998).
Research also focuses on the relationship between the im-
plementation of environmental practices and performance and
suggests that lean production is complementary to waste re-
duction (King and Lenox, 2001). Others argue that corporate
environmental programs generate unrecoverable costs and divert
resources from other productive investments (Walley and White-
head, 1994). Finally, researchers also report that only pollution
prevention leads to financial gain (King and Lenox, 2002;
Klassen and Whybark, 1999). In sum, what emerges from existing
research is that preventive measures are associated with a variety
of benefits for adopting firms while end of pipe solutions lead to
unexpected costs. This said, researchers point out the complexity
characterizing the successful implementation of pollution pre-
vention measures (Aragón-Correa and Sharma, 2003). Such
implementation depends on specific processes (Eisenhardt and
Martin, 2000) and organizational capabilities (Angell, 2001;
Aragón-Correa and Sharma, 2003; Hart, 1995; Pil and Rothen-
berg, 2003). Without such capabilities, a firm, however willing,
may be unable to efficiently reduce its environmental impacts and
may suffer adverse financial consequences.
2.1.3. Plant closure: the ultimate price to be paid for poor
performance
This study focuses on the manufacturing plant as the unit of
analysis and uses a plant's decision to close down as a proxy for
financial failure. In theory, there are many possible explanations
for plant closure. Industry considerations (stemming from regu-
lation, competition, and industry-wide performance) often
determine the fluctuations in the number of facilities in opera-
tion (Greenstone, 2002). Plants owned by larger parent com-
panies may be eliminated for reasons that have little to do with
the plant itself (such as a broader strategic reorganization plan
by the parent firm). In a related vein, the overall profitability of
the parent firm may also guide decisions to close down indi-
vidual manufacturing facilities. Finally, closure is likely to be
related to plant-specific reasons. For example, management
may be more likely to close down a plant that is less tech-
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
parent firm considerations and attempts to isolate the compo-
nent of the closure likelihood that is related to the plant itself.
Further, it proposes that a closing facility has performed as
poorly, or worse, in comparison to a surviving (control) facility.
Consistent with this view, Blackwell et al. (1990) present
evidence that public firms announcing plant closures experience
significant stock price declines. Furthermore, the study controls
for the type of environmental management practices facilities
use to account for the different consequences of varying envi-
ronmental management measures, as outlined above.
The study focuses on plant closure as a form of financial
failure. While there are contrasting arguments about the relation
between environmental performance and financial failure, the
expectation here is that financial benefits accrue from more pro-
active environmental management measures; greater financial
costs accrue from more reactive ones. Thus, controlling for the
former, it is expected that financial failure will be more likely
for plants adopting a more reactive approach.
Based on the above discussion, the study tests the following
basic hypothesis.
H1: Considering the costs of pollution control and the
complexities of adopting pollution preventive measures, the
likelihood that a manufacturing facility closes down relates
positively to its environmental performance record.
2.2. Community and regulatory stakeholder pressures and firm
performance
Firms partly shape their environmental practices in response
to stakeholder pressures (Henriques and Sadorsky, 1999;
Kassinis and Vafeas, 2006) and, as competition increases,
they can benefit from improved stakeholder relations (Hillman
and Keim, 2001). Communities, the political and regulatory
environment (governments, legislatures, and regulators), cus-
tomers, employees, and shareholders are examples of stake-
holders who influence corporate decision making and firm
performance (Berman et al., 1999; Berry and Rondinelli, 1998).
Here, the study focuses on community and regulatory
stakeholders as potential determinants of facility environmental
policies and, ultimately, financial performance.
2.3. Communities
Community stakeholders include, among others, geographic
communities at large and community groups organized around a
political or social interest. The latter may include environmental
groups, which “can mobilize public opinion in favor or against a
corporation's environmental performance” (Henriques and
Sadorsky, 1999: 89)—especially when such performance influ-
ences their welfare. Thus, they may pressure firms to improve
their environmental performance (e.g., Berry and Rondinelli,
1998; Rugman and Verbeke, 1998).
2.3.1. Community income
The relationship between income and pollution is unresolved.
Fundamentally, what is unclear is the extent to which stake-
holders of various incomes can pressure firms to reduce their
environmental impacts in the area where they live. Grossman
and Krueger (1995) suggest that stakeholders pressure firms
through the policy process, which controls resource flows to-
wards firms (e.g., via taxes or subsidies). Furthermore, they find
a relationship between per capita income and environmental
quality and show that for most indicators, economic growth
brings an initial phase of environmental quality deterioration
followed by a subsequent phase of improvement (also see Holtz-
Eakin and Selden, 1992; Selden and Song, 1992). Also, Kassinis
and Vafeas (2006) document a positive relationship between
community income and lower toxic emissions at the plant level
and argue that higher incomes are associated with increased
community power and the capacity to exert stronger pressures on
polluters to reduce their emissions.
A higher per capita income likely enables a community to
exert stronger pressures on a polluting plant to reduce its emis-
sions. Ceteris paribus, such pressures may lead to plant closure
if the plant fails to meet the community's expectations regarding
its environmental record. Thus,
H2a: The higher the community income the higher the
likelihood of plant closure in that geographic community.
2.3.2. Community environmental preferences
Community environmental groups have the ability to mo-
bilize public opinion against a firm's environmental record
(Henriques and Sadorsky, 1999). Thus, community environ-
mental preferences capture a dimension of stakeholder pressures
that can influence managerial decision making. This conceptua-
lization of pressures reflects the expectation that the capacity of
these stakeholders to pressure firms will be greater in the areas
where industrial activities are located and where environmental
pollution is produced. These mobilized constituents influence
the public policy process and through it firm decisions. In turn,
plants exposed to more intense pressures from surrounding
communities are likely to have lower emissions.
Complementing the community income hypothesis, the study
considers membership in environmental organizations as an indi-
cator of the revealed environmental preferences of a geographic
community. According to collective action theory, politically-
active constituents exercise a disproportionately large influence on
the public policy process (Keim, 1985; Olson, 1965) and use it to
pressure firms to improve their environmental performance. Such
pressures may force a facility to close down if it cannot meet
community expectations regarding its environmental record. Thus,
H2b: The stronger the community environmental prefer-
ences the higher the likelihood of plant closure in that
geographic community.
2.4. Regulatory stakeholders
2.4.1. Legislative stakeholders and governments
The regulatory environment (e.g., governments and legis-
latures) affects a firm's competitive position and performance as
issues that create uncertainty and increase the transaction costs
for firms are formulated in a public policy process (Hillman and
Hitt, 1999). In fact, a high degree of interdependence exists
 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494
between a firm's competitive environment and public policy as
regulators can alter the size and structure of markets, influence
product demand and alter the cost structure a firm faces, through
taxes and environmental protection legislation respectively
(Baron 1995; Hillman and Hitt, 1999). As a result of regulatory
pressures, firms reevaluate their strategic approach towards the
natural environment (Hart, 1995; Shrivastava, 1995). This
discussion informs two hypotheses linking regulatory pressures
to plant closure.
2.4.2. Legislative stakeholders
The study includes the hypothesis that the likelihood of plant
closure relates positively to the pro-environment position of the
congressional delegation of the state where a plant is located.
The delegation's voting record on major environmental issues is
indicative of its pro- or anti-environment position and reflects,
at least partly, the environmental preferences of that state's
electorate. Research documents the importance of legislators'
electoral constituencies in determining their legislative actions
while public choice models emphasize the electoral self-interest
of legislators and the significance of their constituencies in
shaping their behavior (Keim and Zeithaml, 1986; Lord, 2000).
Thus, legislators have a strong interest in responding to their
politically-active constituencies because their political survival
depends on them (Baron, 1994; Baysinger, Keim, and Zeithaml
1985; Keim, 1985).
Managers are then likely to interpret the legislators' envi-
ronmental voting record as a signal of the latter's willingness to
use their capacity to exert pressures on firms to improve their
environmental performance. Thus, plants in areas represented
by pro-environment legislators are likely to incur stronger pres-
sures to reduce their emissions than plants in areas represented
by less environment friendly legislators. Such pressures may
force the closure of a plant if its management cannot meet
stakeholders' expectations regarding the facility's environmen-
tal record.
H3a: The more pro-environment the voting record of a
Member of Congress the stronger the pressures exerted on the
plant and the higher the likelihood of plant closure in the area
he/she represents in Congress.
2.4.3. Governments
The likelihood of plant closure is related to pressures exerted
on the plant by governmental authorities in its locale. A stricter
regulatory environment likely exerts stronger pressures on
plants to improve their environmental performance and such
pressures may force their closure if plant management cannot
meet the regulators' expectations regarding a facility's environ-
mental record. The study uses information on environmental
budgets in the state where such industrial activities are located
to capture the state's regulatory stringency and its fiscal and
institutional capacity. Larger state environmental budgets are
related to more intense pressures facing a plant located there
(see also Kassinis and Vafeas, 2006). Carroll (1989) suggests
that budget or staff sizes could serve as measures of the power
associated with a stakeholder group and hence its ability to
influence firm decisions. State environmental spending is
487
significant since, in the last twenty-five years, responsibility
for monitoring and enforcement of environmental regulations
has been devolving from federal to state and local regulators
(Levinson, 2001).
H3b: The larger the environment-related state budget
allocations the stronger the pressures exerted on a plant and
the higher the likelihood of plant closure in that state.
3. Methods
Comparing the competing views of whether pollution pays or
polluters pay is an intuitively appealing exercise. In practice,
devising empirical tests to distinguish between them is quite
difficult. For one, a firm's environmental performance is an
elusive concept to pin down, often measured using rankings and
questionnaires. Also, lack of data forces most studies to adopt a
cross-sectional approach relating environmental to financial
performance. A cross-sectional approach does not allow the
separation of cause from effect and is vulnerable to potentially
unobserved spurious effects driving both environmental and
financial performance. Finally, studying large public firms, as
most studies have done, can be problematic because such firms
usually encompass heterogeneous operations that may adopt
different approaches towards the natural environment. Similarly,
the financial performance of each of these firms reflects the sum
of all its heterogeneous operations. Aggregating environmental
and financial performance at the firm level is likely to be mea-
sured with noise.
The present study's empirical design addresses these issues.
The study focuses on manufacturing plant closings as an in-
dication of economic failure. After controlling for macroeco-
nomic and firm-level effects, it assumes that plants closing down
have performed at least as poorly in the recent past, or more
poorly, compared to surviving plants. Specifically, the study
compares several environmental performance indicators for a
sample of 117 plants that closed down between 1998 and 2000 to
the respective indicators of 351 surviving plants matched on
industry affiliation for the ten years leading to plant closure. The
environmental performance indicators, mostly from U.S. EPA
data sources, are toxic releases, environmental accidents, and
environmental lawsuits. Last, the study attempts to explain the
pattern of environmental performance across plants through a
number of variables that capture community and regulatory
stakeholder pressures in the area where a plant is located.
To deal with the absence of sufficient controls for plant
output – given that such privileged information is unavailable
through commercial databases – and to increase the robustness
of the tests, the study includes a number of steps. Initially, given
that ceteris paribus larger facilities are likely to produce more
toxic waste, rather than focusing on toxics release levels the
study focuses on the annual percentage changes in toxic
releases for the ten years leading up to plant closing. Production,
in fact, continues to increase for closing facilities up to three
years prior to closure. For these facilities, production starts
declining only in the last two years prior to closure. In addition,
the study selected three control facilities for each closing one to
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
The first measure of environmental performance is the to-
tal amount of toxic releases of a plant. This variable, measured
in pounds of toxic chemicals, constitutes the strongest piece
of information on how the facility performs towards the
environment. Given that larger facilities are likely to produce more
toxic waste, rather than focusing on toxics release levels the study
focuses on the annual percentage changes in toxic releases for the
ten years leading up to plant closing. To address appropriateness of
this raw TRI measure, the authors compare its correlation to two
alternative TRI measures based on weighting schemes: 1) they
estimate toxicity-weighted TRI levels (as in King and Lenox, 2000)
for 5038 chemical plants in the TRI database for 1997; 2) they
estimate cancer- and non-cancer weighted TRI levels using the
Tool for the Reduction and Assessment of Chemical Impacts
(TRACI) developed by the US EPA (Bare et al., 2003; Toffel and
Marshall, 2004). They find a high positive correlation between raw
TRI, used here, with toxicity-weighted TRI (r =0.60) and the four
TRACI-weighted measures. Given the high correlation among
these TRI measures, and the intensive computational requirements
of estimating the weights for alternative 10 year periods for the
various plant groups, the study employs and reports raw TRI levels.
Second, using data obtained from EPA's Docket database the
authors construct a variable measuring the number of cases or
administrative actions filed against a facility by the Justice
Department (on behalf of the EPA) for violating an environ-
mental law since 1988. Finally, from the EPA's Accidental
Release Information Program (ARIP) database they collected
information on the number of chemical accidents reported for
each facility. While data for lawsuits covered the entire sample
period, data on accidents were only available from January 1988
to December 1995. The expectation is that firms named as
defendants in EPA lawsuits (see Kassinis and Vafeas, 2002) and
firms reporting more environmental accidents are, on balance,
worse environmental performers than other firms.
Finally, to account and control for the environmental manage-
ment practices employed by each facility, the study uses data
obtained from the TRI database's Waste Quantity Reports for
each facility, to construct three measures of environmental ma-
nagement practices: i) the fraction of toxic chemicals recycled; ii)
the fraction of toxic chemicals combusted for energy recovery;
and iii) the fraction of toxics otherwise treated by the plant. In each
case, information on both on- and off-site recycling, energy
recovery and treatment is available. The study presents results
from total amounts in each of the three categories. As it turns out,
results are qualitatively similar when the further partitioned
measures are used.
As mentioned above, the study uses the following proxies to
capture the effect of community and regulatory stakeholders on
the likelihood of plant closure: (1) Per capita income, which
proxies for community pressures on the facility and is measured at
the county level. Data come from the U.S. Census Bureau's USA
Counties 1998 database. Given that the environment is a normal
good, wealthier consumers demand a better environment (Gross-
man and Krueger, 1995), are more likely to exert pressures on a
facility to improve its environmental performance, and if the
facility fails to do so, their pressures may contribute to its closure.
(2) Voting record—the fraction of times each state's congres-
489
sional delegation voted favorably on environmental issues. The
voting record of each state's Congressional delegation (members
of the U.S. House of Representatives and the U.S. Senate) on
environmental issues (ranging from biodiversity and global
warming to wetlands conservation and mining) comes from the
scorecards of the League of Conservation Voters. The League
keeps track of what approximately 30 of the major U.S.
environmental organizations believe to be the most important
pieces of legislation and how senators and representatives vote on
these issues. Following Kassinis and Vafeas (2002), the construct
captures the percentage of times members of Congress in a
facility's home state voted for an environmental measure. (3) The
ratio of state environmental spending to a state's total budget is
obtained using data from the Council of State Governments. The
amount of relative environmental spending by a state government
is expected to proxy for the amount of pressures exerted on a
facility by the state to behave in an environmentally responsible
fashion, and accounts for the fact that closing and surviving
facilities may be located in different geographical areas. 4)
Finally, the environmental preferences of the population in a
facility's home state are proxied by the number of paying
members of major U.S. environmental and conservation groups
per 1000 state residents (Andrews, 1994).
Most importantly, the study controls for plant output by
accounting for the change in production for each plant over the
ten-year period prior to closure. Using each TRI reporting
facility's full report to the EPA, the authors tabulate and use data
on the quantities of all individual chemicals used as inputs in the
production processes of each plant in each year. While absolute
amounts of materials used are not available, the data source
provides information on usage relative to the previous year—
termed the production index or ratio (e.g., a production ratio with
a value of 1.1 for a chemical implies that the quantity used in year
t was 10% greater compared to year t − 1). Given that information
is provided on a per chemical basis, the authors estimate the
change in the overall volume of production for a plant in a year by
observing the percentage change in the median chemical for that
plant and that year. In any given year, the use of some chemicals
for a plant increased compared to the previous year (the
production ratio was greater than one) while the use of others
decreased (the ratio was below one). The authors rank all the
chemicals for each plant in any given year by production ratio
(i.e., by the change in usage compared to the previous year). They
select the median chemical in terms of production ratio and
assume this was the median rate of change in the plant's overall
production compared to the prior year. Starting in year −10
relative to plant closure, they are able to construct an index
capturing the percentage change in production from year −10 to
any subsequent year.
To account for additional potentially confounding factors
leading to plant closure the study also controls for a number of
other variables in the model. First, it controls for whether a
facility's parent company is a publicly traded firm. The authors
identify parent firms in the EPA's TRI database background
files and check whether these firms are publicly traded by
searching for them in the Compustat database (Global Vantage
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
otherwise. This treatment partly accounts for the possibility that
the likelihood of plant closure is related to a facility's ownership
structure.
Second, a parent reorganization dummy is set to one if the
parent firm underwent a major reorganization in the years prior
to closure and zero otherwise. This information is collected
from the Compustat research file that includes information on
mergers and acquisitions, bankruptcy filings, liquidations. This
dummy variable is an imperfect measure of reorganization
given that a small reorganization plan affecting the sample
facilities may have taken place without being coded in Com-
pustat. This bias is likely to work against the study's
expectations because it will likely add noise to the results.
Because of data constraints, the reorganization variable is only
computed for the public firms in the sample. It is expected that
the likelihood of plant closure is greater if the parent firm
reorganizes its operations.
Third, the study controls for the parent firm's size, appro-
ximated here with sales revenue. This information is collected
from the Compustat database and is measured in the fiscal year
prior to plant closure. Larger firms are more likely to close (or
open) a plant relative to smaller firms because each plant is less
significant to a larger firm-owner in relative terms; and thus the
threshold for closure will be lower. In addition, for the sub-sample
of publicly traded firms, the authors extracted data on net income
from Compustat to explore the role of parent firm profitability, as
an added control variable, in explaining the likelihood of plant
closure. The results (not tabulated) reveal no relation between
parent firm profitability and closure. One likely explanation for
this non-result is, again, the limited importance of any one plant
for public firms that are, on average, quite large.
Finally, a manufacturing activity variable captures the
percentage change in the number of establishments in a state
for a given two-digit SIC code in the period 1992 to 1997. It is
intended to proxy for the level of economic activity in the
facility's industry and locale. These figures were collected for
each state and industry from the Economic Census of 1992 and
1997, as the 2002 figures were not available when data
collection was completed. A lower likelihood of plant closing is
likely in the presence of greater manufacturing activity.
4. Results
Cross-group comparisons in Table 2 provide some initial
insights on the differences between closing and control facilities
that are in line with the first hypothesis. The study initially finds
weak evidence of a greater absolute decrease in toxics releases
for closing compared to control facilities between years − 10
and − 3 (t = − 1.95). Such difference becomes much more
pronounced in the last three years prior to closure, reflecting the
decrease in output by closing facilities.
Univariate tests also show weak evidence of a lower rate of
environmental accidents among closing facilities compared to
control facilities (one closing and 13 control facilities reported
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-
ronmental lawsuit, while 44 control facilities (12.5%) were ana-
logously indicted. The χ2 for the difference in proportions is 3.78
(p b 0.10). Both results point to a more environmentally respon-
sible behavior by closing facilities compared to surviving ones.
Among the stakeholder variables, per capita income is sig-
nificantly higher in the counties where closing facilities are located
(hypothesis 2a), suggesting these facilities may face greater
pressures by their area residents. Similarly, the congressional
delegation is significantly more pro-environment in states where
closing facilities are located (hypothesis 3a). The environmental
spending and environmental preferences variables are not
statistically different between closing and control facilities.
Notably, surviving facilities are a lot more likely to recycle their
toxic waste, in line with the view that such facilities are more active
in mitigating their toxic releases (t= −2.70). In a more refined test
(results not tabulated), the authors find that such a difference stems
from sharp differences in the amount of recycling performed on-
site—possibly pointing to the surviving facilities' in-house
capabilities to do so. Results on off-site recycling are indistinguish-
able between the two groups. Also, the two groups do not differ in
terms of the relative amount of toxic waste used towards energy
recovery or the amount of toxic waste treated, either on- or off-site.
The results are telling on differences in production across the
two groups. The average volume of production increases in each
of the first seven years under study for both closing and control
facilities (for a cumulative change of +45.5% for closing and
+66.8% for control facilities). While production continues to
increase at a similar rate for control facilities, it exhibits a sharp
decline in closing ones, down by 34.5% in the year prior to plant
closure. This signifies that the decision to close down a plant is
made up to three years prior to actual closure. Therefore, it is
reasonable to assume that changes in operations that are observed
in earlier periods (e.g., declining toxic emissions) are not the result
but may well be an antecedent of plant closure.
Deflating toxics reduction from year −10 to year − 3 with the
corresponding change in production suggests a somewhat
higher proportionate decrease in toxics by control facilities
compared to closing ones. This is consistent with closing
facilities slightly lagging in environmental performance com-
pared to control facilities, and making a final attempt to meet
stakeholder demands immediately prior to closure; i.e., in years
− 3 to − 1. Ultimately, this is a question that is best addressed by
the multivariate empirical tests presented in Table 4.
As expected, a facility is significantly more likely to close if
its parent company undergoes major restructuring. Also, the rate
of growth in the number of manufacturing establishments in a
facility's industry and home state, proxying for the manufactur-
ing activity in the facility's home state, is negatively related to
the likelihood of plant closing, albeit weakly. The proportion of
facilities owned by publicly traded firms and the relative
amount of environmental spending in a facility's home state are
statistically indistinguishable across the two groups.
Table 3 presents pairwise correlations between the variables used
in the logistic regressions. The plant closure dummy is positively
correlated with per capita income, proxying for stakeholder
pressures, and negatively correlated with the reduction in toxic
releases and material recycling. Also, as expected, it is positively
correlated with parent firm reorganization and negatively correlated
with pre-closure changes in production. The level of toxic releases
prior to closure is negatively related to measures of stakeholder
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
Also, as expected, closing facilities experience a sharp reduc-
tion in output in the years leading to plant closure. The production
index is negative and highly significant in all four models in
Table 4. Among the remaining control variables, publicly traded
firms are more likely to close down their facilities than other parent
firms (models one and three). Parent firms that undergo a major
reorganization are not more likely to shut down a facility than
control firms. Among publicly traded owners, larger firms, proxied
by logged sales revenues, are more likely to close down a plant,
perhaps because a plant's relative importance to the firm as a whole
decreases as parent firm size increases (models two and four).
Finally, the rate of change in manufacturing establishments cannot
explain the likelihood of plant closing. In sum, the results in
Table 4 suggest that facilities closing down exhibit better
environmental performance than control facilities, contrasting
the unconditional argument that sound environmental performance
leads to greater financial success. Most importantly, they suggest
that the mix of practices used by firms to manage their
environmental impact determines whether financial performance
gains accompany improvements in environmental performance.
The models in Table 4 employ a control sample selected using a
random number generator. To further address the possibility that size
differences across facilities account for the results, the models are re-
estimated by matching each closing facility to a control facility
among the pool of 351 controls used in Table 4 that belonged to the
same industry and had the nearest TRI levels in year −10. Implicit in
this sensitivity check is the assumption that the size of facility
operations is partly correlated with the level of toxic emissions, as
that is measured at a point in time that is far removed from the plant
closing period. The results using this alternative control sample (not
tabulated) are generally in line with earlier results, pointing to a
better environmental record by closing facilities—a greater decrease
in TRI levels in the ten years prior to closure.
5. Conclusions
This study shows that responding to stakeholder pressures and
reducing toxic emissions may have adverse consequences on a
facility's likelihood of survival. At a minimum, it suggests that
facilities that seem to be more environmentally responsible do not
perform better financially and may even perform worse than
facilities that are less environmentally responsible. Taken at face
value, the findings suggest that controlling for a variety of parent
firm and macroeconomic factors, manufacturing facilities were
more likely to close down when they reduced their toxic emissions
more than a control group of survivors. Thus, the results suggest
that at the margin, environmental costs contribute to a plant's
economic failure.
Although the study made a serious effort to control for other
factors related to the likelihood of closure, such as economy-wide
conditions, industry affiliation, parent firm reorganization, profit-
ability, size, and plant-level production data, there remains a set of
plant-level factors for which data are not publicly available and
which would have further enriched the analysis. Plant technology,
productivity, and, most notably, plant age are also likely to be
correlated with the decision to close down a facility. Therefore, the
results on the documented relations between environmental perfor-
493
mance and closure should be interpreted bearing this caveat in
mind.
Importantly, the study also finds evidence that closing
facilities were recycling a lower fraction of their waste materials
compared to surviving facilities. This finding deserves further
investigation possibly in connection with an analysis of the type
of environmental management practices employed by a facility.
Such future work may be informed by research that points out
that financial performance benefits do not accrue indiscrimi-
nately to firms engaging in environmental management but
accrue only to those firms that use waste prevention practices
(see, for example, King and Lenox, 2002; Klassen and Whybark,
1999). At the same time, one should not underestimate the
complexities and challenges that characterize the successful
implementation of pollution prevention measures (Aragón-
Correa and Sharma, 2003). Such implementation depends on
specific processes (Eisenhardt and Martin, 2000) and organiza-
tional capabilities (Angell, 2001; Aragón-Correa and Sharma,
2003; Hart, 1995; Pil and Rothenberg, 2003). In the absence of
such capabilities, a firm or a facility, although willing, may be
unable to efficiently reduce its environmental impacts and, as a
result, suffer adverse financial consequences—including closure.
Finally, as Joshi et al. (2001) suggest, plants may be forced to
close down for underestimating pollution reduction costs, a
sizeable portion of which are hidden (e.g., because of an
inadequate cost accounting system).
The findings point, in part, to the importance of a flexible
environmental regulatory regime. Previous studies highlight the
fact that “well-designed regulations” have positive productivity
impacts, “…are flexible and grant firms latitude on how to meet
goals” while still setting “…ambitious goals that stretch [firms]
beyond current practices” (Majumdar and Marcus, 2001: 170).
Less flexible regulations may inhibit productivity by restricting
firm choices with respect to the means they can employ to comply
with their requirements. In the case of the U.S., the existing
environmental regulatory regime is less “conciliatory” compared
to that of other countries and may thus restrict firm environmental
management choices—making managers less likely to explore
the benefits of pollution prevention and more likely to miss
opportunities for profitable pollution prevention (King and
Lenox, 2002: 297). Thus, managers may be doing their best to
reduce a plant's environmental emissions but may be going about
it using methods or practices that have a negative impact on their
facility's financial success or even survival.
Another set of issues that deserves attention concerns
findings that stakeholder pressures closing facilities face appear
to be more intense than those for surviving ones. Almost 35% of
closing facilities in the sample belonged to the chemical
industry, the most polluting industrial sector in the U.S.
(Hoffman, 1999; Kassinis and Vafeas, 2006). Chemicals has
consistently been the one industry at the center of the
environmental debate – being the target of most early as well
as recent EPA regulations – and overall public scrutiny
(Hoffman, 1999). At least partly as a result of such pressures
and scrutiny, this industry spends almost 10% of its capital
expenditures on environmental compliance compared to an
average of less than 2% for all other industries (Hoffman, 1999).
494 G. Kassinis, N. Vafeas / Journal of Business Research 62 (2009) 484–494
Environmental stakeholder pressures potentially relate to plant
closure. Both regulators and researchers need to examine stake-
holder pressures and regulatory flexibility in tandem. The
expectation must not only be that firms positively respond to
pressures to reduce their environmental impacts but that they are
given the flexibility, through a well-designed regulatory frame-
work, to do so in such a way that meets their environmental targets
and safeguards their financial prosperity as well.
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