Meet, beat, and pollute

Abstract We investigate two related questions about the trade-off between short-term pressures on managers to meet earnings targets and long-term environmental benefits of reduced pollution. Do firms release more toxins by cutting back pollution abatement costs boost in years they benchmarks? If so, is that relation weaker for with higher ratings? Using Environmental Protection Agency (EPA) data toxic emissions, we find U.S. pollute when or just beat consensus per share (EPS) forecasts, suggesting meeting expectations a important goal than reducing this stronger, not weaker, ratings: increase even benchmarks lower ratings. This suggests highly rated build regulatory reputational slack over time use it needed soften negative impact increased contribute real management economics literatures documenting externality financial reporting incentives environment society. also corporate sustainability literature showing an environmental, social, governance (ESG) focus does curb managerial short-termism.