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Arm's Length or Arm-in-arm? Multibusiness firms' Institutional Arbitrage in Medical Monitoring Claims
Xiaoyang Li  1@  , Mingmei Liu  2@  , Maggie Zhou  3@  
1 : Deakin University [Burwood]
2 : Jinan University [Guangzhou]
3 : University of Michigan [Ann Arbor]

We study how firms respond to heightened environmental liability using the staggered adoption of Medical Monitoring Claims (MMCs) across U.S. states. MMCs allow plaintiffs exposed to hazardous substances to seek compensation for the cost of periodic medical testing, even in the absence of present physical injury. We find that MMC adoption leads to a significant decline in facility-level toxic emissions, particularly carcinogenic and airborne pollutants. These effects are driven by single-unit and single-state firms, while multi-unit, multi-state firms arbitrage and adjust emissions strategically. The emission reduction is more pronounced in counties with stronger social activism and among facilities with greater environmental capability. We provide some of the first empirical evidence that multibusiness firms arbitrage to internalize external shocks.


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