Redeploying Dirty Assets

I investigate how property purchasers' exposure to environmental liability affects the redeployability of industrial real estate and corporate behavior. My setting exploits a law change that protects property purchasers from cleanup liabilities. After the law change, the propensity to sell real estate increased by 11-16 percent and the probability of sold property being occupied within a year increased by 18-20 percent. Reducing purchasers' environmental liability improves asset pledgeability, allowing firms to maintain debt issuance and capital expenditure after violating a financial covenant. Finally, stronger purchasers' liability protection does not result in more pollution, except for financially distressed firms. Overall, my results highlight the importance of purchasers' environmental liability in affecting asset redeployabiliy, investment, financing, and environmental policy