Law Reinforcement, Production Pattern and Enterprise Environmental Performance: Evidence from Environmental Courts in China

Abstract

Law reinforcement agencies can be established to improve enterprise environmental performance, a determinant of sustainable growth, but their micropractical evaluation is unclear. This paper uses panel data (1998–2014) from the Chinese Industrial Enterprise Pollution Database and the Chinese Industrial Enterprise Database and adopts the multiperiod difference-in-differences (DID) method to investigate the impact of law reinforcement on enterprise environmental performance (measured by air pollutant emissions). Using the establishment of China’s city-level environmental courts (ECs) as an identification strategy, the study finds a strong positive effect of EC establishment on firms’ environmental performance and confirms the validity of law reinforcement. Furthermore, the effects are heterogeneous for firms with different characteristics (including scale, profit, ownership, pollution intensity and location). Notably, we find that firms improve their environmental performance by changing their production pattern and energy consumption structure. Additionally, ECs could influence firms’ environmental behaviors by enhancing judicial efficiency and generating a deterrence effect. These findings show the government could improve enterprises’ environmental performance through law reinforcement but should consider the heterogeneous effect on different firms.