Abstract
The effectiveness of government regulations on firms’ environmental practices is not always unitary and consistent. Based on a sample of firms in heavy-polluting industries in the context of China, we examine the role of firm-government geographic distance in affecting the firms’ environmental pollution. The findings highlight that information asymmetry generated by firm-government geographic distance weakens governments’ capability to monitor and control firms’ compliance with government-prescribed environmental practices, and thus, firms located far from local governments are more likely to leverage such information asymmetry and pollute more to pursue their private interests. This positive relationship is negatively moderated when local government leaders prioritize environmental protection over local development, and they have longer career horizons. Our study contributes to the literature by exploring the role of geographic distance to local government as a potentially important source of heterogeneities in firms’ environmental practices.
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