Differentiated environmental regulations and corporate environmental responsibility: The moderating role of institutional environment

Abstract

Environmental regulations (ERs) manifest in three main types: command-and-control ER (CMCER), market-based ER (MBER) and informal public ER (IPER). This article analyzes the impact of each type of ER on corporate environmental responsibility (CER) performance, and investigates the moderating effects of firms’ institutional environment on the relationship between ERs and CER. Using data from Chinese listed companies between 2009 and 2016, we found that all three types of ERs are positively related to CER performance. Such effects are more pronounced in regions with high marketization, industries with fierce product market competition and in environmentally sensitive industries, but are weakened by regional economic growth pressures. The moderating effect of corporate ownership structure on the relationship between ERs and CER is diverse, in that the impact of CMCER on the CER of non-state-owned enterprises (non-SOEs) and state-owned enterprises (SOEs) is basically the same, but the impact of MBER and IPER on the CER of non-SOEs are significantly greater than that of SOEs. Further subdivision found that the impact of ERs on the CER of central SOEs is higher than that of local SOEs, and that political connections weaken the impact of ERs on the CER performance of non-SOEs. Using the mandatory disclosure policy as an instrumental variable, a Heckman two-stage model is used to overcome the endogeneity problem caused by self-selection bias. Robustness tests controlling for missing variable bias and the ordered probit/logit model further support our conclusions. Our research shows that the Chinese government should be committed to creating a supportive institutional environment to ensure the effectiveness of their ERs in pursuit of improved CER performance and sustainable development.