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Using novel US environmental spill data, we document a robust negative relationship between the number of spills a firm experiences in a given year and its contemporaneous and lagged (but not future) cash flow. In addition, studying two natural experiments, we find an increase (decrease) in spills following negative (positive) shocks to a firm’s financial resources, relative to control firms. Overall, our results suggest that firms’ financial resources play an important role in their ability to mitigate environmental risk and that such resources therefore affect communities in which these firms operate.

Financial resources and spills 2018Oct