Governmental Attention and Environmental Enforcement in China

Abstract

In this paper, we investigate factors that lead companies in China to be more likely to penalized by the government for their environmental performance. Theoretically, we unpack the mechanisms by which governmental attention is directed, and what types of environmental situations spur governmental action. We focus on two key types of environmental problems including general environmental degradation and environmental crisis potential, and the extent to which they attract governmental attention to firms’ environmental performance. We also examine how firm-government relations and civil society activism shape governmental attention in light of these different types of local environmental conditions. We test our hypotheses on a unique dataset of environmental penalties given to Chinese firms between 2007 and 2011. We find that compared to general environmental degradation, firms in areas with higher environmental crisis potential are more likely to draw governmental attention. In addition, the effects of env...