How does economic growth target affect corporate environmental investment? Evidence from heavy-polluting industries in China

Abstract

Economic growth targets management is the driving force behind China's phenomenal economic achievement over the past decades. However, how it affects corporate environmental behavior remains ambiguous. Based on the data of China's A-share listed companies in the heavy-polluting industries from 2009 to 2019, this study sheds light on the effect of economic growth targets on corporate environmental investment. We find that corporates tend to crowd out their investment in environmental conservation when local governments are under high pressure to address growth targets. It suggests that corporates arrange their investment activities to cope with the distortion effect of government intervention. Consistent with our expectation, evidence shows that corporate environmental investment decreases given that competition on economic growth target drives local officials to relax environmental regulation intensity, especially for cities with high-promotion-incentives officials. Moreover, an interesting finding is that such an adverse effect is greater for SOEs, while ownership heterogeneity does not exist or is small when local officials have stronger promotion incentives. This study not only provides a deeper insight into the role of government intervention in corporate investment decisions, but also contributes to designing better official evaluation systems to achieve sustainable development in emerging economies.