Does environmental compliance pay?

This paper examines the relationship between the environmental compliance and financial performance of large US companies. The environmental performance is measured in penalties assessed for violations of environmental regulations. The financial performance is represented by the profit margins. The regression models developed in this paper suggest that the degrees of environmental compliance have a positive influence on the profit margins. Conventional economic wisdom is that regulations impose costs and restrictions and, therefore, put companies at a competitive disadvantage. However, this paper is consistent with the proponents of environmental regulations who argue that tough regulations force companies to be innovative and as a result make them more productive.