Political Connection and Environmental Protection Investment: A Study Based on Ownership Difference

Abstract

Using data from listed firms in the pollution-intensive industries in China from 2009 to 2019 and taking into account ownership differences, our study examines the causal effect of political connections on environmental protection investment behavior. To deal with the potential endogeneity concern, we created a quasi-natural experiment based on an anti-corruption campaign in China that prohibited officials from holding business positions. Our results indicate that political connections increase environmental protection investment in state-owned firms, primarily when the politically connected director (is affiliated) participates in the firm’s daily operations. However, in non-state-owned firms, political connections hinder environmental protection investment, and, furthermore, investment decreases as the administration level of the politically connected directors increases. Additionally, we also found that local regulatory intensity strengthens the impact of political connections on environmental protection investment. While the study uses China’s firms as the sample, the findings may also apply to other emerging economies.