Work

Firm ownership and pollution

Year: 2025

Type: article

Abstract: We provide a theoretical micro foundation for how much pollution (negative externalities) a firm will internalize based on the ownership distribution of its shareholders. Small shareholders, compared to large ones, want the firm to spend more on avoiding pollution since they suffer less profit loss for the same environmental benefit. In particular, if a shareholder holds a share of 1 / N , where N is the population in society, that shareholder’s preferences align with a social planner’s. Three theoretical predictions arise. First, small shareholders will systematically vote for a greener corporate profile. Second, firms with a smaller weighted-median shareholder will pollute less. Third, countries with concentrated corporate wealth holdings and/or more individualized firm ownership will pollute more. This implies that standard models of externalities in environmental economics and macroeconomics containing representative agents are either internally inconsistent or not fully specified.

Source: Journal of Environmental Economics and Management

DOI: 10.1016/j.jeem.2025.103265

Authors: Tsz Chun Kwok, Daniel Spiro, Arthur A. van Benthem

Institutions: Uppsala University, University of Pennsylvania

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,620