Do Firms Become More Toxic after Going Public? Evidence from Hydraulic Fracturing Operators

How does access to the public equity market affect firms’ environmental externality? We answer this question by examining the use of toxic chemicals by hydraulic fracturing (HF) operators in their drilling and fracturing operations. Using data from 69,070 wells and a difference-in-differences design, we find that after their initial public offerings (IPO), the operators use more toxic chemicals per well, compared with non-IPO operators that drill wells in the same period and the same oil basin. Further analysis suggests that IPO operators either drill longer horizontal tunnels or develop new fracturing liquids that are more toxic, both of which can help increase the productivity of the wells. The impact of IPOs on toxicity is greater for operators issuing more equity and using more proceeds to invest. Finally, we find that the concentration of the toxic chemicals increases in surface water after the HF operators go public. Our results suggest that going public exacerbates the negative externality and environmental concerns