We examine the effect of related party transactions on corporate environmental responsibility and find that firms with more related party transactions tend to have more controversial environmental reports, less emissions reduction, and less environmental expenditures. This relationship is more significant for firms with a high investment-cash flow sensitivity and those with a low ESG score. Overall, the results corroborate the hypothesis that the marginal costs of corporate environmental responsibility outweigh the benefits for financially constrained firms, thus deterring these firms from engaging in corporate environmental responsibility activities.
- Corporate environmental responsibility
- Corporate governance
- Internal capital market
- Pollution emission
- Related party transaction