Promotion vs. pollution: City political status and firm pollution

Abstract

Some corporate pollution behaviors raise public concern on whether local governments can strictly implement the central environmental policy to restrain heavy-polluting firms within their jurisdiction. To explain this tension, on the basis of political incentives, we discuss the effect of the political status of the city where the local government is located on the corporate pollution behaviors within the jurisdiction and consider that political status is an important factor influencing the local governments' trade-off between economic growth and environmental governance. We believe that the political status is an innate political incentive for local governments, indicating that the higher the political status is, the stronger the political incentive the local governments perceive and the more motivated they are to implement environmental policies strictly, thereby reducing corporate pollution behaviors. In addition, we propose that the promotion opportunities of local officials will further strengthen their perceived political incentives, thus reinforcing the focus relationship, whereas geographical distance between central and local governments will further weaken the implementation of local governments, thereby undermining the focus relationship. Analyses on the Chinese heavy-polluting firms listed on stock exchanges from 2008 to 2020 support these arguments. Thus, our results clarify the mechanism of political status influence on corporate pollution behaviors and contribute to the literature on political incentives.