DOES ENVIRONMENTAL COMPLIANCE PAY

This paper examines the relationship between the environmental complia nce and financial performance of large US companies. The environmental performance is measured in penalties assessed for violations of envir onmental 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 regulatio ns impose costs and restrictions and, therefore, put companies at a co mpetitive disadvantage. However, this paper is consistent with the pro ponents of environmental regulations who argue that tough regulations force companies to be innovative and as a result make them more produc tive.