Key points are not available for this paper at this time.
There is a growing concern that regulations that promote safety (e.g., automobile safety and product safety) may have little impact on level of risk associated with utilization of such products 21; 29. A similar concern has been recently raised with respect to regulations that promote safety in workplace 12. A reason often advocated to explain this phenomenon is lack of adequate enforcement mechanisms. In particular, it is often argued that fines imposed on agents not complying with these regulations are not severe enough to have a deterrence effect 30. With respect to enforcement of Ontario Environmental Protection Act (R.S.O. 1980, c. 141), Saxe writes that the majority of fines were too low to act as effective deterrents 23, 104. However, some authors have challenged this view in showing that market provides additional monetary incentives for firms to comply with regulations by punishing non-complying firms through lower stock market prices. For example, some analyses have shown that public announcements of lawsuits against American firms not complying with workplace safety 8, product safety 31 and environmental regulations 19 have caused significant drops of equity value of these firms. In this last study, it was found that announcement of lawsuits against firms violating American Resource Conservation and Recovery Act (RCRA 1976) had a significant negative impact on their equity value on day of announcement, while announcements of suit settlements (e.g., fines) had no effect. In most studies, authors argue that reductions in stock prices have some deterrence effect on firms.
Laplante et al. (Sat,) studied this question.