Do EPA Defendants Prefer Republicans? Evidence from the 2000 Election

Abstract

The election of George W. Bush as U.S. president in 2000, as measured by the Iowa Electronic Market (IEM), was associated with an increase of 3% in the share price of firms that were being sued by the Environmental Protection Agency (EPA). This is equal to approximately $100 billion of shareholder value. This finding is robust to a number of different specifications, controlling for other litigation, case law, and industry, and is not found in an otherwise similar sample of companies without litigation outstanding. It is suggested that the enforcement of environmental law is dependent on political pressure. (JEL G18, K32, G14)

Bush v. Gore and the Effect of New Source Review on Power Plant Emissions

“…He measures the probability that Bush would win the election using the Iowa Electronic Market and finds that the stock prices of "Bush-favored" firms rose as the probability of a Bush victory increased. Hughes (2006) finds that companies that were being sued by the EPA increased in value because of Bush's victory. Most of the companies in his analysis were being sued under the Superfund law, and none were under NSR.…”

“…Between May and November, market participants traded futures contracts for a Bush victory. The Republican contract paid $1, so the price of the contract can be interpreted as the expected probability of a Bush victory (Knight 2006;Hughes 2006). 12 On November 6, the probability was 0.7, so we divide our estimate of α 1 by 0.3 to obtain the effect of NSR on profits.…”

“…12 More precisely, the contract would have paid one dollar if Bush had won the popular vote. Following Hughes (2006) and Knight (2006), we assume the contract measures the probability that Bush would win the election. Despite the fact that Bush actually won the election without winning the popular vote, we assume that market participants viewed this possibility as extremely unlikely, which is consistent with the history of U.S. presidential elections.…”

“…Given the variance of the CARs and the 17 The median is computed over utilities that own at least one non-controlled boiler. 18 Hughes (2006) and Knight (2006) use a different event window, focusing on changes in the probability of a Bush victory between May and November of 2000. We focus on the period after the election because the change in probability is larger and the event window is shorter.…”

Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms

“…In terms of the covariance between stock prices and shocks to activities that foundations might be seeking to reduce, there is a body of literature specifically examining how fossil fuel returns respond to political shocks affecting GHG emissions, the motivating example in the introduction. Hughes (2006) and Lange and Linn (2008) show that the 2000 Bush-Gore election increased stock prices for firms being sued by the Environmental Protection Agency (EPA) and for utilities with polluting boilers. In both cases, Bush was expected to take actions more favorable to polluting firms.…”