Impacts of environmental regulation on firm productivity: evidence from China’s Top 1000 Energy-Consuming Enterprises Program

Abstract

ABSTRACT Regulatory environmental policy is crucial for energy conservation and emission reduction. However, no consensus is available on its impact on enterprises’ total factor productivity (TFP). This study took 6631 chemical enterprises as examples to investigate the impacts of the Top 1000 Energy-Consuming Enterprises Program (T1000P) on enterprises’ productivity. The empirical results from the difference-in-differences method indicate that the T1000P hinders TFP improvement. Specifically, the TFP change rate of enterprises affected by the T1000P decreased by 0.9230% annually. Mechanism analysis shows that the impact of T1000P includes increasing business costs, and reducing the profits of regulated companies. By checking the ‘compensation effect’ and ‘crowding out effect’ of the T1000P on enterprises’ technological progress, we prove that the T1000P had negative impacts on technological innovation and reduced the enterprises’ productivity. Therefore, the environmental regulations should be implemented based on industry characteristics and develop differentiated strategies to avoid excessive interference with the enterprises’ production decisions.