Fresh Start or Fresh Water: The impact of Environmental Lender Liability
January 2026
Working Paper Number:
CES-26-05
Abstract
I study the impact of lenders' environmental responsibility. The empirical setting exploits the U.S. Lender Liability Act of 1996, which reduced lenders' exposure to the environmental clean-up costs attached to some of their debtors' collateral, and employs difference-indifferences specifications estimated using EPA and U.S. Census microdata. Firms whose lenders face lower environmental liability risks increase pollution, reduce investment in abatement technologies by 14.7%, while experiencing small production and employment distortions. Lenders facing higher liability risks offer loans with less favorable pricing, thus financially incentivizing firms to become more environmentally responsible, and potentially monitor borrowers via shorter debt maturity.
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:
financial,
finance,
leverage,
borrower,
lending,
loan,
lender,
borrowing,
debt,
emission,
pollution,
epa,
environmental,
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Annual Survey of Manufactures,
Internal Revenue Service,
Toxics Release Inventory,
Longitudinal Business Database,
Environmental Protection Agency,
Census of Manufacturing Firms,
Boston College,
New York University,
Business Register,
UC Berkeley,
Office of Personnel Management,
Census Bureau Disclosure Review Board,
Disclosure Review Board,
Federal Statistical Research Data Center,
University of Texas,
University of Virginia
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