Date of Award

Spring 4-17-2025

Document Type

Campus Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Mine Ertugrul

Second Advisor

Lucia Silva Gao

Third Advisor

Atreya Chakraborty

Abstract

This dissertation explores the impact of environmental regulations on corporate policies and financial market outcomes. It consists of three essays that examine how climate regulations affect market valuations, corporate innovation and investment strategies, and capital structure decisions. Using a novel hand-collected dataset that links facility-level greenhouse gas emissions from the EPA’s Greenhouse Gas Reporting Program (GHGRP) with firm-level financial data from CRSP and Compustat, the analyses provide detailed measurements of firm-level regulatory exposure.

The first essay investigates market reactions to methane regulations under the Inflation Reduction Act of 2022, finding that investors react significantly to firms’ direct regulatory risk and stringency exposure. The second essay studies how firms adjust innovation and capital expenditures when subject to environmental fees, and document an increase in R&D investment among firms with greater regulatory exposure. The third essay examines firms’ capital structure responses, and show that firms facing new regulatory compliance costs significantly reduce leverage, with more pronounced effects among financially constrained firms.

The dissertation contributes several novel measures that better capture firm-specific climate regulatory risk than traditional emission aggregates. These findings offer critical insights for understanding how firms adapt to regulatory environments and how investors price climate risk. Keywords: environmental regulation, corporate finance, climate regulatory risk, innovation and investment strategies, greenhouse gas emissions, methane fee.

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