The Informational Role of Voluntary Certification: Evidence from the Mexican Clean Industry Program

In the presence of imperfect information, voluntary certification can provide an important complement to mandatory inspections as a basis for environmental regulation in low income countries. Using data from Mexico's Clean Industry Program, we show that patterns of compliance and certification by sector are consistent with a model in which selection into the voluntary program permits more efficient targeting of regulator effort. As expected given the informational role played by certification in the model, we also find evidence, for a sample of publicly traded firms, of positive stock price deviations linked to the announcement of certification.