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Do Stock Markets Penalise Environment-Unfriendly Behaviour?

Shreekant Gupta & Bishwanath Goldar

A growing body of research suggests that capital markets react to environmental news and thus create incentives for pollution control in both developed and emerging market economies. The use of the market as a regulatory mechanism may be particularly important in developing countries where monitoring and enforcement capabilities are limited. A link between stock prices and firms' environmental track record provides an incentive for firms to participate in voluntary programmes to improve environmental quality.

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