Abstract
ABSTRACT In 2014, the Chinese central government required implementing natural resource and asset accountability audit for local officials to promote environmental governance. From the perspective of government subsidy allocation, this paper examines whether and how the new government audit policy influences the strategy of local governments to high-polluting firms. We adopt a multi-period difference-in-difference research design and find that after the policy implementation, local officials pay more attention to local ecological performance, thus, reducing the government subsidies to high-polluting enterprises. They also reduce support for high-polluting by reducing tax incentives. These findings document that the implementation of government audit policy weakens the collusion between local officials and high-polluting firms, which enriches the intercross investigation between government audit and environmental governance.
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