The Effects of Environmental Policy Stringency on Firms' Performances: Focusing on Korean Manufacturing Industry

ABSTRACT This study analysed how stringent environmental policy affects firms' performances in Korean manufacturing. The environmental policy stringency index published by the OECD was used as the main explanatory variable. As for the firms' performances variables, real total cost, real total sales and real EBIT were used, which capture the impact‐response‐outcome of environmental policies, respectively. By and large environmental policy stringency had a negative effect. Environmental policy stringency also had a more delayed effect on EBIT than on cost and sales. In addition, firms responded differently to the cost increase by firms' characteristics such as size and financial soundness.