Environmental Regulation and Corporate Financing—Quasi-Natural Experiment Evidence from China

Xinghe Liu,Enxian Wang,Danting Cai

doi:10.3390/su10114028

Xinghe Liu, Enxian Wang + Show 1 more

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https://doi.org/10.3390/su10114028

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Abstract

The Environmental Protection Law, which includes 70 articles and major changes in six aspects compared to the old law, is called in Chinese society the new Environment Protection Law. When the law was implemented in 2014, it was an important event in China that could be seen as a natural experiment. Based on a difference-in-differences model, this paper considers all of the listed heavily polluting enterprises between 2011 and 2016 as the experimental group and all of the other firms in the same industries listed on the Chinese stock market as the control group and examines the impact of the new Environmental Protection Law on the corporate financing of heavily polluting enterprises and its mechanisms. The results show that the strict environmental law caused Chinese listed enterprises to face higher environmental regulation costs, public pressure and environmental litigation. The financing capacity of heavily polluting enterprises has dropped significantly, especially in areas with higher regulatory intensity. Furthermore, since the new Environmental Protection Law was established, overinvestment by China’s heavily polluting enterprises has been significantly inhibited, and the decline in financing capacity exerts a mediating effect. The ultimate economic consequences of the new Environmental Protection Law are to decrease the corporate value of heavily polluting industries.

Highlights

Environmental problems have become increasingly prominent in China due to the rapid development of the economy and society
In terms of other coefficients, the researchers observed that the company size, the leverage level, the company’s growth rate and the company’s financing ability are significantly positively correlated, and before and after regulation, the first shareholder ratio and the enterprise financing capacity are significantly negatively correlated
China’s economy has entered a period characterized by a new normal; under this new normal, it is critical that China continue industrial deepening and accelerate industrial development

Summary

Introduction

Environmental problems have become increasingly prominent in China due to the rapid development of the economy and society. Environmental regulation refers to the sum of policies and measures formulated and implemented for the purpose of environmental protection. According to the degree of coercion of policy instruments, they can be divided into three categories: direct regulation (standards, orders and controls); economic instruments (taxes, tradable emissions permits, etc.); and “soft” means (voluntary industry agreements, environmental programs certifications, etc.) [1], among which the introduction of a law marks the highest level of environmental regulation. The original Environmental Protection Law (1989) had an undeniable effect on protecting resources and the environment, but the law was implemented more than 20 years ago, and major changes have occurred in China’s economic system and societal structure since . The law was lagging behind social realities, seriously restricting China’s rational use and effective protection of resources and the environment. Millions of people called for improvement of the Environmental Protection Law, and China began enforcing a newly amended Environmental

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