Corporate Innovation and Capacity Utilization in China's Coastal Areas: Governance under the Context of Environmental Regulation

Abstract

Zheng, C.; Zhang, Y., and Chen, K., 2020. Corporate innovation and capacity utilization in China's coastal areas: Governance under the context of environmental regulation. In: Wan, Z. (ed.), Coordinated Sustainable Development in Coastal Areas: Environment and Economy. Journal of Coastal Research, Special Issue No. 109, pp. 197–205. Coconut Creek (Florida), ISSN 0749-0208.Previous empirical analysis of scholars found that environmental regulation has a significant impact on overcapacity and industrial structure adjustment, higher environmental regulation will increase overcapacity, while moderate environmental regulation will optimize industrial structure. Moreover, in the industrial enterprises above the scale, the industrial structure has an intermediary effect between environmental regulation and overcapacity. This paper studies corporate innovation and capacity utilization under the background of environmental regulation. Taking publicly listed firms in China's coastal provinces from 1990 to 2017 as our sample, the corporate innovation under environmental regulation has been significantly enhanced， and hence alleviates overcapacity in China. This means that environmental regulation promotes the formation of a virtuous circle. To firms with high-quality innovation, the positive effect is more pronounced. Moreover, to firms with bad internal governance, specifically to firms with high agency cost, the capacity utilization is low, which means serious waste of resources and environment. Meanwhile, external governance from the stock market, specifically analyst coverage and institutional ownership, fails to intensify the positive effect of corporate innovation on capacity utilization.