New officials, fresh outlooks on policy uncertainty: Leadership turnover in environmental protection bureaus and additional corporate environmental reporting

Abstract

Whereas prior research has explored the corporate environmental reporting (CER) effects of policy uncertainty caused by political turnover, little attention has been paid to the impact of environmental protection bureaus (EPBs). The recent top-down environmental management institutional reform has substantially enhanced the discretion and authority of EPBs and led to EPB heads exerting increasing effects on environmental enforcement in Chinese localities. Enlightened by this institutional change, in this research we investigate the degree to which policy uncertainty caused by leadership turnover in EPBs changes the level of CER. The results show that the turnover of an EPB head has increasingly caused additional CER activity and that this impact is more pronounced in politically embedded firms and in those whose affiliated cities are under intense environmental pressure. Further analyses reveal that corporations exhibit better CER performance if former EPB heads are promoted to superior political levels or if newly appointed EPB heads have not been promoted locally. The findings suggest that environmental management reform has led CER practices in China to be increasingly related to local EPBs, and the turnover of EPB heads could have strong policy implications, which sheds new light on the conventional policy uncertainty hypothesis.